Prohibition of competition agreement, generally, is an agreement type which only employees undertake an obligation. However this agreement, within the framework of the freedom of contract principle, may be made in a way as both parties undertake to perform some duties. Due to existence of many disputes in practice regarding consequences of employees' breaches of duty of non-competition, legal consequences of these breaches will be elaborated.

As per the Article 446/1 of Turkish Code of Obligations numbered 6098 ("TCO"), "The employee who acts against the duty of non-competition, is under obligation to compensate the employer's all incurred damages due to this act", if the employee acts against the duty of non-competition and the employer incurs damages due to this act, the employee is under obligation to compensate all incurred damages of the employer. The amount of said damages is considered as the material difference between the situations that the employee does not act against the prohibition of competition and the employee breaches duty of non-competition. Therefore, if the damage is proved, the employee, within the scope of the law of obligations, is under obligation to compensate the damage. The said damage may occur in ways of actual damages and loss of earnings. If the employer proves its own claims, the employee may avoid making compensation if and only if the employee proves that he/she is not faulty while breaching the duty of non-competition. As proving the fact that the employee's act caused the damage is a burden on the employer, for avoiding this case, in practice, employers add a penal clause into agreements and thus employers can request the amount stated in penal clause without being subjected to the obligation to prove their damages and the employee's fault.

As per the Article 446/2 of TCO,  "If the act against the prohibition is stipulated to a penalty provision and there is no provision to the contrary in the agreement, the employee may discharge himself/herself from duty of non-competition by paying the stated amount;  however, the employee must indemnify the damage exceeding this amount", unless otherwise determined by the parties, the employee may breach his duty of non-competition by paying the amount of penal clause agreed in the prohibition of competition agreement. However, as stated in this article, the employer can collect the amount from the employee by proving that he/she incurred damages exceeding the amount of this penal clause and the employee was in fault. Scope of the compensation arising from the act against duty of non-competition stated in TCO is regulated in the same way as ordinary provisions of breach of the contract. Thus, in order to be released from making compensation, the employee, as per the Article 112 of TCO "If the obligation is not performed at all or properly, debtor will be held liable to recover creditor's incurred damage, as long as the debtor proves that no fault can be attributed to him/her", the employee must prove that no fault can be attributed to himself/herself.

Judge, as per the Articles of 27/1 and 2 of TCO, "Agreements against the mandatory rules of law, moral principles, public order, personal rights or with impossible subjects are definitely invalid. Invalidation of some of the provisions of the agreement does not affect the validity of the others. However if it is clearly understood that the agreement would not be drawn up without these invalid provisions, the entire agreement becomes invalid.", can ex-officio decide that the entire of or some of provisions in the agreement is invalid. In addition, judge, as per the Article 182/3 of TCO, "Judge ex-officio reduces the penal clause which he/she considers it as excessive", can ex-officio reduce the amount of penal clause agreed in the prohibition of non-competition agreement if the agreed amount is excessive.

The non-competition agreement drawn up by the parties will be ended in situations such as; the death of employee, mutual rescission, expiration of agreement and that maintaining employee's duty prohibition of competition is no longer beneficial for the employer, termination of the employee's agreement by the employer without just cause and termination of employment agreement by the employee due to the reason can be attributed to the employer.

According to the consistent precedent of Court of Appeals, if the employee acts against duty of non-competition during the term of the employment agreement, the mentioned acts are considered as breach of duty of loyalty and it is determined that in such cases, labor courts will be authorized. However, after that contractual relationship between employee and employer is ended, as determination of whether employee's act breaches the duty of non-competition or not is regarded as commercial matters, commercial courts will be authorized. This subject is not adequately taken into consideration in practice while filing this lawsuit. Therefore, when these lawsuits filed in labor courts, judges ex-officio dismiss these lawsuits due to lack of competence as competence of the court is related to the public order.

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.