Can the executive employee undertake a non-competition obligation after the termination of the employment for free? It seems that the Hungarian Supreme Court finds the limits of party autonomy elsewhere than the legislator. We summarise the merits of the judgment in our article.
The employer employed the plaintiff as a sales director from March 2015. Based on the labour contract, the plaintiff was an executive employee and had the powers to substitute the CEO.
In his labour contract, the plaintiff undertook not to carry out any economic activity for the competitors of the employee, unless the employer gives his consent. The parties also declared in the labour contract that they differ from the provisions of the Hungarian Labour Code and plaintiff is not entitled to any remuneration for the performance of the non-compete obligation.
- Legal dispute between the parties
The employer fired the plaintiff during the probation period. The employee sued the employer based on the ground that the non-competition agreement without any remuneration is not valid.
On the contrary, the employer claimed that the non-competition agreement is valid. In fact, in case of executive employees the Labour Code provides the possibility to differ from its provisions to the detriment of the employee. In case of executive employees there are only limited provisions from which the parties cannot differ (eg. a pregnant executive employee also cannot be fired with ordinary termination). The provision that employees shall receive remuneration for the performance of the non-compete obligation is not listed among these provisions thus the parties are free to differ from it.
- The decision of the Curia
The Curia, like in many other cases, has not supported the employer's view in this regard. Although the Curia agreed that the non-competition agreement is not listed among the provisions of the Labour Code which prohibit to differ from them to the detriment of the employee.
Nevertheless, it is the essential condition of the validity of the non-competition agreement that the employer shall pay remuneration to the employee for the performance of his obligations. Indeed, the non-competition agreement restricts the fundamental rights of the employee and this restriction shall be compensated by the employer. This shall apply to executive employees, too.
With his position adopted in the decision, the Curia has widened the exhaustive list in the Labour Code which declares the provision it is prohibited to differ from to the detriment of the executive employees.
However, the Curia only stated that the parties cannot differ from the provision of the Labour Code which makes the non-compete agreement free. Thus, it may be concluded that the parties may agree that the employer pays less than the amount of the 33% of the base salary for the respective period which is a condition of the validity of the non-compete agreement in case of "ordinary" employees.
Nevertheless, if it is important for the employer that the employee does not start a competing activity, it is not worth to play with the numbers and save money on the non-competition agreement. Indeed, if the non-competition agreement is overthrown, the employer could lose much more money.
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.