Legality of a non-competition clause in an employment contract

Legality of a non-competition clause in an employment contract

 "Before the events of the last few days, I was about to sign an employment contract with a company as a customer advisor. However, I was concerned by a clause that required me to refrain from competing with my employer for four years after the end of the employment relationship. If I breached the clause, I was liable to pay compensation equivalent to 6 months' salary. Is such a clause lawful? " Thierry, Vaud

The inclusion in an employment contract of a clause prohibiting employees from competing with their employer is not atypical and is authorised by law. The Swiss Code of Obligations provides that an employee may undertake to refrain from engaging in any competing activity after the end of the employment relationship, whether by setting up his own business or by working for a company operating in the same field.

However, a number of conditions must be met for the clause to be effective. In particular, the clause must be in writing so as to enable the employee to realise the implications of the commitment he is making. Apart from the form, the clause is only valid if the employee is actually in a position to compete with his employer, particularly if he knows the names of customers or has access to manufacturing or business secrets. It will be necessary to determine whether the use of this information by the employee is such as to cause prejudice to the employer, a notion that is analysed in terms of the turnover achieved; the loss of a single customer may therefore be sufficient if the latter brings in a considerable sum to the company.

The clause must also be clear. In particular, it must state precisely the place where its effects will be felt, the duration of the prohibition and the type of business prohibited. The purpose of these restrictions is to ensure that the economic future of the business is not adversely affected. The ban must apply to a specific area and may not exceed three years. If the clause goes beyond what is permitted by law, it will not be null and void, but its scope will be reduced by the judge.

In the event of a breach of the prohibition on competition, the employer may claim compensation from the employee. The contract sometimes provides for a quantified penalty, which must not, however, be excessive in relation to the nature and duration of the employment relationship.

Ultimately, your employer can, to a certain extent, prohibit you from competing with him once the employment relationship has ended, with financial consequences if you ignore him. However, the four-year term provided for in your draft contract is excessive and could be reduced to a maximum of three years if a dispute were to be brought before an industrial tribunal. We therefore hope that you will be able to adjust this contract and conclude it once the economic situation improves.