A non-compete agreement which is conditional upon the preservation of the original duties introduces an element of vagueness that undermines the entire agreement.
This principle was confirmed by the Italian Court of Cassation in order no. 10679 of 19 April 2024. In this case, the non-compete agreement provided that if the employee’s duties changed during the term of the relationship, the employee would be free from the non-compete obligation 12 months from the new duties. Moreover, the agreement provided that the geographical area subject to the non-compete agreement related to the Veneto region and to a further area that the company reserved the right to define on termination of the relationship.
In light of the above, it follows that the content of the non-compete agreement must be determined in advance and any clauses that result in its vagueness (such as the modification of the duties or of the geographical area) result in its nullity.
Other related insights:
Ever-increasing market competitiveness makes entrepreneurs increasingly interested in protecting themselves against the possible dissemination of company knowledge (data, working processes, company notions, confidential customer names) acquired by their employees during their employment to competing companies. The non-competition agreement, as governed by Art. 2125 of the Civil Code, is one of the tools available to companies to protect this interest following the employment relationship termination. However, the agreement validity is subject to precise rules and limits that are only partly defined by Law. The Webinar highlights the critical issues and opportunities of the competition limiting clause during employment relationships, providing participants with valuable guidelines for its correct practical application.
Date : 9 March 2022
Time 10 – 11 am
Speakers:
Adv. Enrico De Luca – Partner – De Luca & Partners
Adv. Luca Cairoli – Associate – De Luca & Partners
Click here to register.
The Court of Cassation, with order no. 23418 of 25 August 2021, returned to deal with the subject of requirements for validity of non-competition agreements. The Court’s ruling is based on appeal lodged by a bank manager who (among other claims submitted) had challenged a signed non-competition agreement, considering it vitiated, since the payment was paid during employment and was random and at any rate inconsistent, thus amounting to a violation of the requirement cited in art. 2125 of the Italian Civil Code. In the case in question, the non-competition agreement included the manager’s commitment not to perform, in certain regions of north and central Italy, similar activities or duties as those performed for the Bank for the duration of three months, for a payment equal to 10,000 euro per annum, to pay annually together with the monthly salary.
The Court of Milan, asked to rule on the merits, had acknowledged and declared the nullity of the non-competition agreement, and with that releasing the manager from payment of the penalties for breaching it, however sentencing the plaintiff to return the sum received as payment. During the next challenge of the ruling, the Milan Court of Appeals, overturned the decision of the lower court on the point, declaring the non-competition agreement valid holding that no irregularity existed (in terms of randomness or inconsistency) regarding the quantification of the payment that, on the contrary could, according to the Court, be validly paid during employment along with remuneration. Objecting to the higher court’s ruling, the manager lodged an appeal with the Court of Cassation.
Continue reading the full version published in Norme & Tributi Plus Diritto of Il Sole 24 Ore.
Court of Cassation, 1 March 2021, no. 5540
“Concerning the non-competition agreement entered into with an employee, the mere provision that the agreement is onerous excludes the extreme sanction of the agreement’s nullity may be applied if there is a financial imbalance of the services, unless there is an agreement of symbolic compensation or manifestly unfair or disproportionate to the employee’s sacrifice and loss of earning potential.”
The Court of Appeal of Milan, reforming the ruling of first instance,
It argued as follows: “the agreement in question is null and void because there is no determination or determinability of the remuneration paid to the employee considering the professional limitations imposed by the employer and because it is consequently impossible for the employee and the judge to ascertain its fairness with the professional sacrifice required.”
The local Court held that it was clear from a reading of the agreement clauses that no provision had been made for a minimum duration of the agreement or for the employee’s payment of a guaranteed minimum amount to be established in advance if there was an employment relationship termination.
The agreement was structured so that if there was an employment relationship early termination, the employee was not entitled to full compensation, i.e. €18,000 gross (€6,000 gross multiplied three years), but only the amount accrued during the year or part of it.
The remuneration amount was not established and could not even be determined based on objective parameters. Instead, it depended on a variable linked to the relationship duration, which led to an imbalance between the parties and an unbalanced contractual structure in the employer’s favour. This made the established remuneration incongruous and the agreement null.
The company appealed to the Court of Cassation against that ruling, claiming a strong contrast between opposing statements and objectively incomprehensible reasoning. The employee responded with a counter-appeal.
The Supreme Court found the employer’s complaint to be well-founded and, in support of its decision, made the following points.
The non-competition agreement is an autonomous form of negotiation (Court of Cassation, ruling no. 16489/2009) and nothing more than a contract for pecuniary interest and remuneration in return for which:
As an entirely autonomous agreement from the employment contract, the remuneration agreed upon must meet the general requirements of determination or determinability imposed by Art. 1346 of the Italian Civil Code for the service subject, under penalty of agreement nullity.
What are the interests underlying the agreement?
The purpose of the non-competition clause is to safeguard the entrepreneur from any “transfer to competing undertakings” of the company’s intangible assets and protect the employee. This prevents the clause from excessively restricting possibilities to direct work towards other more convenient occupations (most recently, Court of Cassation, ruling no. 9790/2020).
Continue reading the full version published in Guida al Lavoro of Il Sole 24 Ore.
Marco Giangrande and Antonella Lacobellis lectured during of the 23, 24 and 25 November Labour Law module training course. The module was part of the “Diritto e Impresa” (Milan) master’s course organised by Il Sole 24 ORE Business School.
The course focused on the labour law sources, the essential elements of the subordinate employment relationship, necessary and accessory clauses of the subordinate employment contract, fixed-term contracts, the exercise of disciplinary power and the transfer, secondment, and travel regulations.
During Marco and Antonella’s lecture, several exercises were held to allow participants to put shared ideas into practice.
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Marco Giangrande and Antonella Lacobellis lectured during of the 23, 24 and 25 November Labour Law module training course. The module was part of the “Diritto e Impresa” (Milan) master’s course organised by Il Sole 24 ORE Business School.
23 November 2020:
The lecture dealt with labour law sources, the establishment of the employment relationship, the subordinate employment and self-employment relationship typifying elements, art. 2103 of the Italian Civil Code. “Jus variandi”, with particular focus on demotion and fixed-term contracts.
Exercise: drafting of a non-competition agreement.
24 November 2020:
The lecture dealt with the exercise of disciplinary power and the transfer, secondment and travel regulations.
Exercise: A business game, consisting of solving a company case, through a path of multiple-choice questions. This experiment allowed participants, who were divided into teams, to learn, by playing, to correctly impose a disciplinary sanction to avoid worker repercussions.
25 November 2020:
The lecture’s covered the defence of the company in court and facing a working hearing. It looked at the introductory appeal of the case, work behind the scenes, the close collaboration between lawyer and client, the trial process, first hearing, witness examination and the hearing.
Exercise: drafting of a letter of disciplinary action and examination of an appeal under art. 414 Code of Civil Procedure following an appeal against dismissal for objective reasons.
