Definition and Types of Restrictive Covenants
Agreements to restrict the activity of employees during employment or after contract termination are allowed under certain terms and conditions. Non-compete agreements/clauses (after termination) are enforceable only if the activity of the employee is likely to cause harm to the employer and payment of a non-competition compensation amount is agreed and complied with.
It is also possible for the employee to agree to a non-termination covenant, by which the employee undertakes not to terminate the contract, subject to a maximum period of 3 years, as a way to compensate the employer for high expenses incurred with the employee’s professional training. The employee may in any case anticipate the end of this period by reimbursing the employer for the relevant expenses incurred.
Although it is common to find that companies have included non-solicitation covenants (non-solicitation of customers / employees,…) in their outsourcing, service provision and joint venture agreements, among others, these restrictive covenants are actually not enforceable under Portuguese labour law.
Enforcement of Restrictive Covenants – Process and Remedies
To enforce restrictive covenants after termination of employment, the agreement must state either the amount of the compensation due to the employee or the criteria for its determination. This compensation can be paid in fractions during the term of the agreement or it can be paid all at once. The parties may agree on contractual penalties that may be claimed in case of breach of agreed restrictive covenants. Damages caused by breach of such covenants may be claimed from the party at fault.
Use and Limitations of Garden Leave
When resigning or when having been served a prior notice for dismissal (e.g. collective dismissal) employers frequently choose to grant the affected employee a paid leave. Employers cannot actually instruct the employee to stay away if he/she choses to continue performing his/her work role until the prior notice period is completed. The only possibility given to the employer is to instruct the employees to use any unused holiday period during the final part of the prior notice being served and, therefore, in practical terms, to actually leave before the end of the prior notice period. Garden leaves in the context of pending disciplinary proceedings are allowed particularly after the accusation note has been served to the employee.