1. Definition of Restrictive Covenants
The sole restrictive covenant that is regulated by the Labour Code is the non-compete clause. With this type of clause, the employee shall refrain from engaging in any independent activities, which correspond to those of his/her former employer and which compromise the employer’s interests following the end of his/her employment.
2. Types of Restrictive Covenants
a. Non-Compete Clauses
A non-compete clause must be agreed in writing and included in the employment contract (e.g in his own name).
Other conditions that have to be respected:
- the employee may not be a minor when signing the contract;
- the clause can not be related to a period of time which extends to more than 12 months after the end of the employment contract;
- the scope of the clause must be geographically restricted and never extended outside Luxembourg;
- and the clause must relate to a specific occupational sector and to activities, which are at least similar to those of the employer.
Moreover, the non-competition clause may only apply to an employee whose salary reaches the legal threshold.
b. Non-solicitation of customers
This type of clause is valid under Luxembourg law but the Labour Code does not regulate such clauses.
c. Non-solicitation of employees
This type of clause may be inserted in an employment contract.
3. Enforcement of Restrictive Covenants—process and remedies
Under the Labour Code, there is no obligation to provide financial compensation for the non-compete covenant.
The non-competition clause is not applicable in cases where the employer has terminated the contract for gross misconduct and the termination is considered wrongful, or without observance of the legal notice period.
4. Use and Limitations of Garden Leave
An employer can exempt from work an employee during the notice. There is no statutory right to pay in lieu of notice but during the exemption, the employee must be remunerated with the same salary and benefits as if he/she was working.