Did your employer asked you to sign a non-compete clause? Here’s what you should know about the applicability of this clause in Romania and what conditions must be fulfilled in order for this clause to be valid.
Romanian law acknowledges employers’ right to protect themselves in the work relations with their employees, by means of a non-competition clause for employees who have access to the „company’s confidential information” or to „essential information” or who hold a key position within the company.
Post-employment restrictions can be included as part of an employment contract or an addendum to the employment contract (typically for senior positions) and they will need to meet certain criteria.
In order to be valid and to produce its intended effects, the non-competition clause must be drafted correctly and completely, that is to say, it should include all the mandatory elements provided by law.
The provisions of the Labor Code are very clear regarding the moment when the non-competition clause can be agreed by the parties, namely together with the conclusion of the employment contract or after the date of its conclusion, by an addendum.
If a non-competition clause will be agreed by the parties after the termination of the employment contract, such clause will not be subject to labor law provisions, but will be a civil clause that will have the effects established by the parties.
A non-competition clause must:
- define the competing activities forbidden to the employee
Prohibited activities must be concurrent activities with those that the employee performed for his former employer.
The employee who is bind by a non-competition clause can work for a competitor of the employer, but he can be obliged not to perform competing activities with those that he carried out for the former employer.
Therefore, if an employee completely changes his field of activity, the fact that he will work with a competitor of the former employer is not relevant from the perspective of the non-competition clause.
- target a fixed period of time, which shall not exceed 2 years from the termination of the employment contract
The non-competition clause cannot be established and does not produce effects for the period during which the employment contract is in progress, but only for the period after its termination, as agreed by the parties.
- define the competitors for whom the employee is prohibited to work
Competitors can be the employee himself (when he would perform an activity in his own interest) or other third-party competitors.
It would be best for all competitors to be nominated, but in case it is not possible to mention their exact name, the third parties can be defined by establishing sufficiently clear references (for example, „companies in the field of activity X, ‘’companies with a turnover rate above a certain level”).
- define the geographical area where the employee is prohibited to perform competing activities
The geographical area imposed by the non-compete clause can be a city, a county, a country. Depending on the specificity of the business to which the non-competition clause refers, the geographical area in which the employee may be forced not to work may be wider or narrower.
The geographical area should be reasonably established, namely where the employee can be in real competition with the employer; if, for example, an employer has developed a local business, it would be unnecessary and not recommended to impose a non-compete clause for the entire territory of the country.
- Include the amount of compensation for non-competition
The compensation for the non-compete clause is negotiable and must be at least 50% of the average of the gross salary of the employee for the last six months prior to the termination of the employment contract. If the duration of the employment contract was less than six months, from the average gross salary income due to him throughout the contract.
The compensation must be paid starting with the termination date of the employment contract (not with the date when it was signed) and on a monthly basis, as the Labor Code clearly provides the fact that it must be paid during the entire period of the non-competition clause.
The amount of money paid as compensation is a deductible expense for the employer when calculating taxable profit.
The taxes due for the collection of the amounts representing non-competition compensation will be paid by the beneficiary (the former employee). Given the fact that such compensation is not a salary income, the former employee does not owe social contributions for this amount of money.
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Ana Maria Alexandru
