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.
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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 its ordinance no. 9790 of 26 May 2020, took the opportunity to return to express an opinion on the legal grounds of the non-competition clause as per art. 2125 of the Civil Code. The Court took the time to specifically analyse the purposes of the agreement, the limits to its scope, as well as the nature of the payment to be recognised for the worker otherwise the clause is null and void.
Facts of the case
The ruling in question originates from a sentence of the Rome Appeal Court which, confirming what was established in first instance, had upheld the petition of an employer to pay a penalty for breach of the non-competition clause entered into with an employee with private banker duties.The worker, after dismissal, had worked at a competitor company, working with the clients who were part of the client portfolio of the previous employer.
The Appeal Court had judged the non-competition clause valid considering that in the case in question the requirements established by art. 2125 of the Civil Code. The employer appealed against the ruling of the territorial Court.
The Supreme Court of Cassation’s decision
The Court of Cassation, in rejecting the appeal and confirming the lawfulness of the non-competition clause in question, initially looked at the nature of the payment of the non-competition clause confirming that “it does not have a compensatory nature but constitutes the payment of an obligation to not to do something”.
Secondly, the Supreme Court took the opportunity to identify and define the functions of the non-competition clause. The Court of Cassation judges felt that it had the purpose of “protecting the employer from any “exportation to competitor companies” of the company’s intangible assets, in its internal elements (technical and administrative organisation, work methods and processes, etc.) and external elements (goodwill, clientele, etc.), considering it an asset that assures its resistance on the market and its success compared to competitor companies”.
Within such context, art. 2125 of the Civil Code is concerned with protecting the employee, so that non-competition clauses “do not weigh excessively on the possibility of being able to direct one’s work activities towards other occupations, considered more favourable, providing that they can be subordinated to certain conditions, temporal and spatial, and an adequate payment, or they are null and void”.
The Supreme Court then looked at identifying what the limits should be to extension of the scope of the non-competition clause. Specifically, it confirmed that – in the absence of specific indications by art. 2125 of the Civil Code – “attention must be given to the employee’s activity not limited to the specific duties actually performed at the employer and to whom the restriction is applied and look at the employer’s activity, with the consequence that activities outside the specific production or business sector where the company works must be excluded from the subject matter of the clause since they are not adequate for adding to competition,”.
The non-competition clause, the Judges continued “may regard any work activity that can compete with that of the employer (based on the protection of fair competition that it constitutes, on one hand, expression of the freedom of economic initiative and pursues, on the other, the protection of collective interest, preventing excessive restrictions on competition) and thus must not be limited to the sole duties performed by the employee during the employment, considering them null and void should the scope be such as to restriction the expression of the actual professionalism of the employee in limits that compromise every earning potential”.
According to the Court of Cassation, the identification of the activities in competition with each other must be performed ”in relation to each market in its objective structures, where demand and supply for identical goods and services overlap or those which are mutually alternative and/or useable, at any rate, equally suitable for offering goods or services in the same market”.
Lastly, the Supreme Court took the opportunity to rule on the principle of consistency which must be the inspiration for determining the amount of consideration due to the worker. The same reiterated that the provision of invalidity, contained in art. 2125 of the Civil Code, refers to those cases where “symbolic or manifestly unequal or disproportional to the sacrifice requested from the worker and reduction of his earning possibilities, regardless of the usefulness that the requested behaviour represents for the employer, as well as its hypothetical market value” have been agreed upon.
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In light of the principles mentioned above the Court of Cassation rejected the worker’s appeal considering the agreement in the case in hand consistent with the Civil Code. In the negotiations a value had been placed on the scope of the ban on working in the single sector represented by private banking and for the same product types for which the employee had worked at the Company with the same clientele and the territorial area (Region of Lazio) and chronological (3 years) limits. Moreover an adequate compensation had been agreed upon (7,500.00 euro per annum for the entire period of employment and regularly paid by the Company).
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