1. Definition of Restrictive Covenants
There are two different kinds of non-competition clauses in Austria:
- the prohibition of competition and
- the non-competition clause.
The term prohibition of competition refers to an employee`s duties towards his employer for the entire duration of the employment. The term non-competition clause governs the post-contractual state.
Prohibition of competition:
Neither blue-collar nor white-collar workers are allowed to compete with their employer during employment by holding an additional occupation. This general prohibition of competition remains in effect up to the day of a termination of employment. This time frame also includes the notice period as well as times of payed garden leave taken during the notice period.
The prohibition of competition is governed in specific rules for white-collar workers. Accordingly, without the employer´s consent, salaried employees may neither run an independent commercial business nor enter into transactions on their own account or on the account of third parties in the specific trade of the employer. Nevertheless, it should be noted that the employer can renounce the total or partial observance of the prohibition of competition expressly or tacitly.
2. Types of Restrictive Covenants
a. Non-Compete Clauses
An employment contract may also contain a non-compete clause, which goes into effect after termination of the contract. The purpose of this post-contractual non-compete clause is to prohibit an employee from working for a competitor of the former employer and hence from competing with him. However, this non-compete clause of the employment contract will only be valid if it meets three statutory requirements:
- First, the employer may not be a minor at the time that they enter the agreement.
- Second, the clause may only limit the employee´s participation in business within the specific field of the trade of the employer for a period not exceeding one year.
- Finally, the non-compete clause may not constitute an unreasonable restriction on further professional advancement of the employee in relation to the employer´s business interests.
- Additionally, the employee must earn a minimum salary of 3.240,00 Euros gross per month (amount for 2016; special payments are excluded).
Generally, a non-compete clause that extends beyond the period of employment is not valid in the case where the employer unilaterally terminates employment or if the employee terminates the employment agreement due to the employer’s breach of contract. There is an exception to this rule when the employer terminates an employment agreement with immediate effect for cause, or when the employee terminates their own employment agreement without cause. The employer does have the option of terminating employment while maintaining the validity of the non-compete clause by continuing to pay the employee’s salary throughout the agreed, one- year, non-competition period.
b. Non-solicitation of customers
In the employment-agreement, the employer may also include a non-enticement clause– which is a special kind of the competition clause. It concerns an arrangement, after which the employee may not enter into business relationships to any or all customers of the employer after the ending of the employment relationship. Such clauses are most common in the area of independent professions (lawyers, auditors and civil engineers).
c. Non-solicitation of employees
Apart from these two demonstrated clauses, the employer may also include a non-enticement clause, which prohibits the employee for a certain period of time after ending of the employer-employee relationship from working together with employees of the former company. This does not only refer to active or even accusable poaching of employees, but also to a mere cooperation between an ex-employee and his former colleagues.
3. Enforcement of Restrictive Covenants—process and remedies
Prohibition of competition:
The breach of the prohibition of competition has different legal results: First, a breach of the prohibition of competition constitutes grounds for dismissal and entitles the employer to immediately terminate the employment. In addition, the employer can also assert compensation claims, demand the assignment of payment claims toward third parties, or require the restitution of all gains made in the business transaction. It is important to note, however, that the employer´s claims laps either within three months from the day he had knowledge of a business transaction; or in any case, five years after the conclusion of a deal.
For working-class employment, comparable grounds for dismissal are given if the worker pursues a side-line business, which is not permitted, beside his commercial activity.
Employer and employee can also agree upon a contractual penalty for cases of breach of non-competition agreements. If such a contractual penalty has been agreed upon, the employer can no longer insist on the post-contractual non-competition clause, meaning that the former employee is free to compete with the ex-employer after paying a contractual penalty.
It is therefore recommended that the employer does not include a contractual penalty clause in the employment contract. After all, an employer is always less interested in financially penalizing his former employee, than in making sure that knowledge obtained while the employee was still working for the company remains with the company.
Since the 1st of January 2016 the height of a conventional penalty is limited. The agreed conventional penalty may not exceed six net month remunerations excluding special payments.
4. Use and Limitations of Garden Leave
Garden leave is an arrangement which an employer can use to help protect himself against possible mischief by an employee during the notice period when the employee has resigned or been dismissed. The employee must stay away from work during the whole or part of the notice period but continues to be employed and to receive pay and benefits.
While a person is on garden leave he is usually forbidden to contact any of his employer’s customers or fellow employees. Suppliers are sometimes off limits as well. People on garden leave are normally denied access to their employer’s computer system and are often required to return their company car, laptop, smartphone, e.g.
They are, however, expected to be available to provide their employer with information and support as and when it is required. Whilst on garden leave, an employee must observe the implied duty of fidelity in his employment contract as well as any express restrictions in the contract on competing or doing a second job whilst an employee. In practice, he will probably not be allowed to work for himself or anyone else whilst on garden leave.