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Restriction of Competition Agreement

Viimati uuendatud: 23.02.2017

According to this agreement, the employee may not start working for the employer’s competitors or act in the same fi eld of activity as the employer. An agreement that considerably limits the employee’s free self-assertion and possibility to earn higher income is justified if:

  • the limitation is required to protect the special economic interests of the employer as the employee’s knowledge gathered during employment could considerably harm the employer;
  • the limitation is determined spatially, timely and objectively to a reasonable extent;
  • the employee understands the essence of the limitation and has been informed about it in writing.

Usually, the competition limitation is valid only during the employment relationship and the employer is not obliged to pay extra remuneration for it. But some competitionsensitive fields of activity do exist where keeping the production or commercial secrets and customer base in secret is essential for the employer to protect its commercial interests.

In this case and emanating from the ECA § 24, a written competition limitation agreement is concluded, the duration of which does not exceed 12 months from the end of the employment relationship. To adhere to this agreement, the (former) employer must pay reasonable monthly compensation to the (former) employee after the end of the employment contract.

Unfortunately, it is quite common that employment contracts contain agreements like: the employee receives a salary of 900 euros per month, which includes 200 euros of compensation for avoiding competition for two years after the end of the employment contract.

The remuneration may not be paid to the employee in advance during the employment relation, and the parties may not agree on a longer timely limitation. According to the ECA § 2, the deviation from legislation that disfavours the employee is invalid. Furthermore, salary is for completing work tasks, not remuneration for additional responsibilities.

Even though the competition limitation agreement for a certain period after the end of the employment contract may also be concluded at the end phase of the occupational relationship, the employer should consider that the employee must also agree with it. The employee, especially a top specialist, may state that the employer has acted in mala fi de and refuse to sign the agreement. The employee may also state that if they had known that their freedom to choose the next position would later be limited, they would not have taken up the position to begin with.

Disagreements may also arise from the amount of remuneration paid. How big is reasonable remuneration? Legislation does not knowingly state any percentages as remuneration is case-based and depends on several circumstances.

The space limitation should also be realistic. For example, one top technology enterprise in one Estonian science park has set a yearly competition limitation across the globe for its employees, but this is a very exceptional case.

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