Important decision of the Milan Court: employee restrained from working for a competitor of his former employer and sentenced to pay a penalty for breaching the non-competition covenant

(Pretura of Milano, Labour Section, judgement no. 390 of February 22, 1999, unreported)

A product manager employed by a company of electric components, who signed a non-competition covenant at the moment of his hiring whereby he should not have worked for a rival in trade after the termination of his employment contract, recently has been restrained from working for a competitor of his former employer and sentenced to pay a penalty for breaching the non-competition agreement.

The agreement was directed to restrain the labour activity of the employee on the following conditions: (i) an activity limit which prohibits the employee from working for a trade rival who produces, markets or sells hardware or software components in competition with those of the employer, (ii) a time limit of three years of duration, (iii) a space limit of the entire Italian Republic territory. Moreover, (iv) in addition to the normal remuneration a further compensation was granted to the employee as consideration for undertaking such obligation. Finally, (v) the covenant provided for the payment of a penalty in case of breach of the agreement. The penalty amounted to two times the remuneration paid to the employee during the 12 months preceding the termination.

The employee voluntarily resigned after four years of employment and started a new relationship with a competitor of his former employer, who therefore decided to sue him by means of an emergency relief for breaching the non-competition covenant. More precisely, the employer successfully sought an emergency order that the former employee be restrained from working for the competitor (Pretura of Milano, Labour Section, order of October 19, 1998, unreported). The employee presented immediate appeal but the emergency order was confirmed by the judge of second instance (Tribunale of Milano, Labour Section, order of December 16, 1998, unreported). Since such measures only have an interim effect, the former employer commenced the ordinary cognitive proceeding in order to determine the issue definitively by virtue of a judgement on the merits. In particular, the former employer requested a final injunction to prevent the employee from working for the competitor for the remaining period as provided by the non-competition covenant. He also asked that the employee be sentenced to pay the penalty for breaching the covenant.

The Pretura of Milano, Labour Section, judgement no. 390 of February 22, 1999 rejected the employee's arguments and held valid the agreement. Particular relevance must be given to the fact that the space limit (the entire Italian Republic territory) has been considered fully valid. Moreover, the judge held the view that the agreement does not prohibit the employee from exercising his constitutional right to work: the covenant only prohibit the employee from exercising it in a way that may breach the right of his former employer to protect his trade secrets or confidential information. Furthermore (this is a particularly interesting aspect of the rationale behind the decision) the injuction aims to guarantee that the obligation that has been undertaken by the parties (abstention from working for a trade rival) be properly fulfilled. As a consequence, the employement contract entered into by the employee and the new employer cannot be declared null and void and the former employer has the right to receive the payment of a penalty in order that the prejudice caused by the activity carried out for the competitor by the employee be restored. In fact, since the employee started to work for the competitor, the prohibition from competing was not sufficient to guarantee the entire satisfaction of the right of the former employer deriving from the agreement.

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.