Employee's duty of non-competition is effective until employment agreement's termination, even if it is not situated in the agreement. This obligation arises from employee's duty of loyalty. It has been regulated clearly in article 396/3 of Turkish Code of Obligations (TCO).
The matter at hand is extension of this duty after termination of employment agreement. The parties can sign a separate agreement for this non-competition obligation, but it could stipulate in employment agreement with a clause too. Non-competition agreement is regulated in article 444/1 of TCO as;
"Employee, having the capacity to act, may undertake in writing against his employer not to compete after the expiry of the agreement in any manner whatsoever, especially via setting up a competitor enterprise for his account, working for another competitor enterprise or apart from that refraining from entering into a relationship with the competitor enterprise in which the employee aims to gain interest in any other kind"
There are a number of conditions have been foreseen in article 444 to 447 of TCO for validity of non-competition agreement. If non-competition agreement does not fit in with these conditions, the agreement will be invalid.
- Validity Conditions of Non-Competition Agreement
- Form
As per the article 444/1 of TCO, non-competition agreement shall be made in written form. Otherwise the agreement will be invalid.
- Tangible Conditions
- Opportunity to obtain information on production secrets, employer's business transactions or customer portfolio
For validity of non-competition agreement, employee must has an opportunity to obtain information on production secrets, employer's business transactions or customer portfolio.
Within this scope, first condition to sign non-competition agreement is that the employee must has at least one of these information;
- Customer Portfolio
- Production Secrets
- Employer's Business Transactions
If employee does not has an opportunity to obtain these information because of his job position, the parties cannot sign a non-competition agreement. If they sign, the agreement will be invalid.
According to one of The Court of Appeal's decision, non-competition agreement cannot be sign with a nurse because she does not has an opportunity to obtain business secrets. In another decision, The Court of Appeal decided that the employee who works as project engineer in employer's workplace, has an opportunity to obtain business secrets because of his job position.
- Possibility of a Significant Harm to Employer's Business
Employee's information about customer portfolio and business secrets is not enough to make a valid non-competition agreement. Beside this, there should be a possibility of significant harm to employer's business when employee uses those information.
The possibility of a significant harm is enough, therefore it must not be realized. Every derogation cannot be interpreted as significant harm. Accordingly, significant harm could be identified as; significant decreases on employer's earnings or orders, significant limitations on employer's business activities and damages on employer's competition capacity.
- Limitations on Time in Non-Competition Agreement
The time of the agreement, apart from the special circumstances and conditions, cannot exceed two years. The start date of the non-competition agreement is termination date of the employment agreement.
- Limitations on Place in Non-Competition Agreement
Non-competition agreement should be limited by place to become valid. Place limitation could be limited with a certain city or a particular region. But if the place limitation is limited as nationwide, non-competition agreement will be invalid.
- Limitations on Type of Work in Non-Competition Agreement
Also, non-competition agreement should be limited by type of work to become valid. The prohibition of competition provisions must be applied with respect to the activities that the employer carries out and limiting provisions shall be written explicitly and leave no room for any doubt. This limitation should be limited not by employer's whole activities but only employee's job position. For instance, an employee who works in marketing position cannot be prohibited from taking a position in production process.
- The Judge's Intervention to Non-Competition Agreement
The Judge's intervention to non-competition agreement has stipulated in TCO. According to article 445/2 of TCO;
"the judge, by means of evaluation of all the facts and circumstances freely and by keeping in mind the employer's counter performance that he/she may undertake with fairly manner, may limit the excessive prohibition of competition provisions within the context of its scope and duration."
The judge could limit the non-competition agreement by evaluating of all the facts and if there is a payment to employee for his non-competition obligation. For instance, the judge could limit the agreement's duration by six months when it is agreed as two years in the agreement.
- Breach Of Non-Competition Agreement
The employee who breaches the non-competition agreement, is under obligation to compensate the employer's all incurred damages due to this act. Beside this the parties could put in a penalty clause in the agreement. Thus, employer could use this penalty clause in a violation situation instead of proving his loss.
It is known that in practice employers put in a penalty clause in non-competition agreements because it is hard to prove his loss. But if penalty clause be evaluated as extreme, the judge could revise it.
- Expiration of Non-Competition Agreement
Non-competition agreement will be expiry in these circumstances;
- If there is not any real benefits for the employer from non-competition obligation
- If the employer terminates employment agreement without a valid reason
- If the employee terminates employment agreement because of the employer's actions
- Conclusion
- If an employer wants to extent the non-competition duty after termination of employment agreement, he must add a clause to employment agreement or sign a separate agreement about non-competition duty.
- Non-competition agreement shall be made in written form.
- For validity of non-competition agreement, employee must has an opportunity to obtain information on production secrets, employer's business transactions or customer portfolio.
- Beside this, there should be a possibility of significant harm to employer's business when employee uses those information.
- Non-competition agreement should limited by time, place and context/type of work. The time cannot exceed two years.
- The judge could change or limit the non-competition agreement when necessary.
- When employee breaches the non-competition agreement, employer could claim his loss or if there is a penalty clause in the agreement, employer could use this clause too.
- Non-competition agreement will be expiry in these circumstances; if there is not any real benefits for the employer, if the employer terminates employment agreement without a valid reason or if the employee terminates employment agreement because of the employer's actions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
