Non-Competition Rules Applicable after Termination of Employment
A brief analysis of the rules that apply in Italy to labour contracts aimed at restricting competition between employees and former employers.
A non-compete covenant prevents an employee from competing with her/his former employer in any way once the work term ends. Additionally, it prevents the employee from disclosing proprietary, sensitive, or secret information to any other parties during or after employment. This also applies to agreements between independent parties involved in commercial activities, such as dealers and distributors, and similarly situated relationships.
Pursuant to article 2125 of the Civil Code by a non-compete covenant the employer undertakes to pay the employee a sum of money in exchange for the latter’s commitment not to carry out competitive activities for a certain period of time following termination (for whatever reason) of the employment.
The non-compete covenant limits the employee’s right to keep performing the same activities after the termination of the employment relationship.
In order to be valid and enforceable, the non-compete covenant must:
• be agreed in writing;
• be limited in terms of activities which are prohibited to the employee;
• be limited in terms of duration (maximum 3 years for employees, and maximum 5 years for managers);
• be limited in terms of geographical reach;
• provide a fair compensation (ranging between 20 and 40% of the annual gross salary, according to case law).
The employer has the right to request compensation for the damages suffered because of a breach of the non-competition covenant. Frequently such damages are predetermined as liquidated damages in the covenant.
However, courts are entitled by law to reduce the amount of liquidated damages if they are deemed excessive. The said covenant does not prevent the employer from claiming additional damages if such right is provided for in the clause; the amount of additional damages compensation must be proven in courts. Moreover, the employer is entitled to reimbursement of the consideration paid to the employee by virtue of the covenant.
Should the judge, upon request of the employer, declare the covenant at stake terminated by default of the employee, the latter would be, on one side, condemned to damage compensation and to reimburse the consideration so far received; on the other side, she/he would be no more obliged to respect the non-competition covenant.