Common use of Competition provision Clause in Contracts

Competition provision. Provisions in employment contracts that prohibit employees from working for their employers’ competitors are non-binding if such provisions are broader than is necessary to prevent competition or if they restrict the employees’ freedom of employment in an unfair manner. In either case, such provisions must be evaluated on a case-by-case basis with consideration to all relevant factors. Competition provisions should therefore not be worded too generally. In assessing the breadth of an employment contract’s competition provision, particularly in terms of the scope of application and time limits, the following factors must be taken into consideration: a. The type of work the employee in question performed, e.g. whether he/she is a key employee, is in direct contact with customers or bears a significant confidentiality obligation. Any knowledge or information the employee may have regarding the company’s operations or its customers must also be considered. b. How fast the employee’s knowledge becomes obsolete and whether normal equality among employees is observed. c. The type of operation in question and the competitors in the market in which the company operates, and the extent of the employee’s knowledge. d. That an employee's freedom of employment is not restricted in an unfair manner. e. That the competition provision is specific and concise with a view to protecting certain competitive interests. f. The remuneration an employee receives, e.g. how high his/her wages are, also come into play. Competition provisions of an employment contract do not apply if an employee resigns without providing sufficient reason.