Employee’s duty of non-competition is effective during the term of employment agreement and it expires after termination. However the parties can decide to extend this duty with a clause in employment agreement or in a separate non-competition agreement. Non-competition agreement is regulated in the article numbered 444/1 of Turkish Code of Obligations (“TCO”) as;
“Employee, having the capacity to act, may undertake in writing against his employer not to compete after the expiry of the agreement in any manner whatsoever, especially via setting up a competitor enterprise for his account, working for another competitor enterprise or apart from that refraining from entering into a relationship with the competitor enterprise in which the employee aims to gain interest in any other kind”
Non-competition agreement must be in written form and be specific to the employee. In addition to this, the employee who undertakes not to compete with his/her employer, has to work in a position that he/she can obtain information regarding the employer’s customer portfolio, production secrets and business transactions and using of these information could harm the employer heavily as well. In this way, it was prevented to conclude a non-competition agreement with employees who cannot compete with employer in real terms.
2.LIMITATIONS ON NON-COMPETITION AGREEMENT
The Article 445 of TCO, limits the non-competition agreement in terms of place, time and type of work. Also, the prohibition of competition cannot peril the economic future of employee against fairness.
- Limitations on time: The time of the non-competition agreement, excluding the special circumstances and conditions, cannot exceed two years.
- Limitations on place: Place limitation could be limited with a certain city or a particular region. However, the place stipulated in the agreement should not exceed the area in which the employer has an interest to be protected.
- Limitations on type of work: The non-competition agreement should be limited by type of work to become valid. The prohibition of competition should be limited to the concrete task of the employee in the enterprise.
3.AUTHORITY OF THE JUDGE TO LIMIT EXTENSIVE NON-COMPETITION CLAUSES IN TERMS OF SCOPE OR TIME
The Article numbered 445/2 of the TCO stipulates the authority of the judge to limit extensive non-competition clauses in terms of scope or time. The judge can evaluate the conditions of prohibition of competition freely and has discretion power of limiting the clause with regards to duration or scope. For example, the judge can reduce the duration of the agreement to one year when it is agreed as two years in the agreement.
4.BREACH OF NON-COMPETITION AGREEMENT
In the event of the breach of non-competition agreement, the employee must compensate the employer’s all incurred damages. In addition, the parties can determine a penalty clause in case of a breach of the agreement. In this case, employer does not need to prove his/her loss, it is sufficient to prove the violation of the non-competition. Employee can discharge himself/herself from duty of non-competition by paying the stated amount. However, the employee must indemnify the damage of employer exceeding this amount. The judge can reduce the amount, if it is evaluated as extreme.
5.EXPIRATION OF PROHIBITION OF COMPETITION
Pursuant to the Article numbered 447/2 of TCO, in case of the termination of the employment agreement without justified reason by the employer, prohibition of competition will be terminated. Besides, if employee terminates the employment agreement due to employer’s behaviours, he/she will not be responsible for non-competition agreement.
In conclusion, with the non-competition agreement, it is aimed to prevent the employee from using the information and trade secrets that he/she obtained while working with the employer, to the detriment of the employer, after the employment agreement is terminated. Since the non-competition provisions restrict the employee’s competitive activities with the employer and the freedom to work, they are subject to certain and mandatory conditions by the laws and the case law of the Court of Appeals. In this context, the non-competition agreements which are not in compliance with these regulations are deemed invalid before the courts.
Att. Dilara KARTALOĞLU KILIÇ
TARLAN-BAKSI LAW FIRM
ATT. AYLİN TARLAN- ATT. DERYA BAKSI