Poland: Non-compete Clauses And Agreements In Poland

Non-compete in Poland - key facts:

Non-compete agreement - essence

In view of Polish Law - non-compete agreement (so-called 'NCA') (or non-compete clause) is a special kind of agreement (or a contractual stipulation) in the commercial or employment contract which prevents the employee or a contractor from:

• working or providing services for a competitive entity;
• working or providing services for a company's client;
• conducting competitive business activities.

Non-compete agreements or non-compete clauses are usually concluded with management staff, senior staff or employees/contractors operating in a specific industry, e.g. IT, high-tech, legal, finance.

The essence of non-compete arrangements is to prevent employees or contractors from using specific knowledge (often - know how) for work or any assignments with competitive entities.

Non-compete clauses or agreements are often used also outside the employment relationship, e.g. in business agreements, agency agreements etc. - however in such contracts antitrust restrains shall be always taken into consideration as non-compete arrangements between market players may be considered as "prohibited anti-competitive agreement".

Non-compete in Polish Law

Regulation of non-compete arrangements in Poland is rather concise. Most of the regulations may be found in the Polish Labor Code - which is applicable only to employment contracts. Some additional regulations may be found in Polish Civil Code and in Antitrust Regulations - which are applicable to other commercial / business relationships.

Non-compete in employment contracts

The Labor Code of Poland provides the following regulations of non-compete:

• definition of a non-compete activity,
• legal form of the non-compete arrangements,
• distinction between non-compete:
  • during employment relationship;
  • after lapse of employment relationship;
• minimum standards for the non-compete agreement after the lapse employment.

It is important to remember that the regulation of non-compete included in the Labor Code is applicable only to the employment contacts and is not applicable commercial or civil law contracts (e.g. B2B or B2C contracts)

Non-compete during the term of the employment

Non-compete arrangement for the period of employment may be agreed simultaneously with conclusion of the employment contract or at a later date. In practice in Poland non-compete arrangements are most usually included in separate contracts in order to underline the importance of such arrangement.

As mentioned before non-compete clause or contact is not a mandatory part of the employment relationship. However - regardless whether such an agreement has been concluded, the obligation to refrain from competitive activity is still the basic obligation of every employee, which results directly from the Labor Code of Poland. Nonetheless, it is always recommended to regulate non-compete in details, rather than relay on general implied non-compete stipulation of Polish Employment Law.

If the employee refuses to enter into non-compete contract during the employment relationship, it may be treated by the employer as a justified reason to terminate the employment contract.

If the non-compete was concluded for the term of the employment, employee can receive an additional compensation for refraining from the competitive activities. However, this element is not mandatory and non-compete during employment relationship in Poland does not have to be additionally compensated.

By default, non-compete obligation ends with the termination of the employment relationship.

An employer who has suffered damage as a result of the employee's violation of the non-compete agreement, may claim compensation from the employee. In certain circumstances the amount of damages maybe be restricted by the Labor Code of Poland.

Non-compete after lapse of employment relationship

The non-compete restriction can be valid also after lapse of employment relationship - for a certain, definite period established by the employer in the separate non-compete agreement.

It is important to be aware that in Polish Law - if the non-compete for the period after lapse of employment relationship - is agreed within the content of employment contract - it will be null and void. Such a restriction must be agreed in separate non-compete agreement.

There is one additional mandatory element of non-compete after lapse of employment - the compensation.

Compensation for non-compete restriction after lapse of the employment relationship may not be lower than 25% of the remuneration received by the employee before the termination of the employment relationship for a period corresponding to the duration of the non-compete agreement.

The parties can agree on a higher percentage, but the minimum standard is set by law and therefore must be respected. Compensation may be paid to the employee in one sum or in monthly instalments, paid on a fixed date every month.

As a rule, the prohibition of competitive activity after termination of the employment relationship ceases to apply after the lapse of time for which it was established. However, it can also expire earlier - in the event of:

• the cessation of the reasons justifying such ban;
• employer's failure to pay the mandatory compensation;
• employer's failure to pay compensation on time - this applies to the cases where the compensation is paid in monthly instalments.

However, this will only result in the possibility for the employee to undertake a competitive activity, and not the termination of the contract itself - therefore, in such a case, the employer is still obliged to pay out the compensation, unless the stipulations of non-compete contract provide otherwise.

Non-compete with B2B contractor (commercial non-compete)

Concluding non-compete agreements with staff engaged under civil or commercial law contracts gives the parties a lot more flexibility. The provisions of Polish Labor Code do not apply to such contracts, and the parties are guided by the principle of freedom of contract resulting from the Civil Code of Poland. This means that the parties can freely establish the terms and conditions of the contract, without restrictions from the Labor Code of Poland.

However, the parties should be careful that the content of the contract does not conflict with the principles of "social coexistence" or the "nature of the contract", otherwise it can be deemed invalid.

For example, as a general rule, in the case of B2B contracts:

• it is not permissible to prohibit the contractor from "all and any types of activity".
• it is not permissible to prohibit performing activities that do not correspond to the scope of principal's activity.
• it is not permissible to prohibit operations in a region where the principal does not conduct his business, e.g. abroad (when the principal does not operate abroad at all)

All of above - may also be considered contrary to the principles of social coexistence.

The non-compete agreement with the contractor can be concluded for the term of the cooperation and also after the term of the main cooperation agreement. What is important, the non-compete agreement must always be limited in time.

In case of the staff hired based on the civil-law contracts, the non-compete agreement does not have to be a separate agreement - it can be a clause included in the main contract. Nevertheless, concluding a separate agreement allows for more precise regulation of the parties' obligations.

Form and contents of the non-compete restrictions

The non-compete agreement should be concluded in a written form with handwritten signatures of both parties (so called 'wet' signatures).

Both in the case of the non-compete agreements for the employees and the contractors, the NCA should specify:

• the period for which the non-compete ban applies;
• a broad definition of the competitive activity;
• the amount of the compensation for refraining from competitive activity and the method of payment - if employee is entitled to one;
• the area in which the contractor is to refrain from competitive activity - usually in the case of B2B contractors who run their own business;
• the consequences of infringing the non-compete ban.

The NCA concluded with civil-law contractor may also specify:

• contractual penalties and their amounts;
• the possibility of seeking damages above contractual penalties.

Contractual penalties may also be stipulated in civil law contracts or in the non-compete agreement with employees hired under employment contract but only for the restriction after lapse of the employment relationship. Polish Labor Code provides regulations on compensation for the employer for breach of a non-compete agreement during the term of the employment and stipulating a contractual penalty is not allowed.

Dissolution of the non-compete agreement

As a rule, the non-compete agreement is binding for a fixed amount of time and therefore the contract will dissolve with the lapse of the time for which it was concluded.

The other possibilities to dissolve a non-compete agreement may only result from the content of the contract itself. This means that the agreement may be terminated before the expiry of the term only if the parties, when concluding it, agreed on its termination under a certain condition. If the parties did not provide those special exit options, the contract is irresolvable (until the lapse of the period for which it was concluded).

Mutual termination agreement is always an option to end the non-compete agreement - but this requires a willingness of both parties.

Termination of non-compete - COVID provisions

The special COVID act of Poland - also provides an additional option to dissolve the contract for the employers bound by the non-compete agreement with the employee after the employment term. Such employer can terminate the contract with 7-day notice period - if he considers the obligation to pay the compensation too much of a financial burden for the company. However, this provision can only be used during an epidemic emergency, or a state of epidemic declared due to COVID-19.

This special COVID act provision can also be used in case of staff hired based on civil law contracts, but similarly to the above-mentioned, only in the case of non-compete agreements after the lapse of the contractual relationship.

Breach of the non-compete

In case of breach of the non-compete agreement concluded with the employee for the term of the employment contract, the employer will be able to claim damages from the employee on the terms set out in the provisions of the Labor Code of Poland.

Contractual penalties may be agreed only in the:

• non-compete agreement after lapse of employment relationship, as well as
• in the case of non-compete agreements with staff hired under civil law contracts.

Therefore, violation of non-compete by such above listed persons may result in employer's/principal's ability to demand payment of a contractual penalty. If such a possibility has been provided explicitly provided in the contractual terms - the employer/principal will also be able to claim damages in excess of the contractual penalties.

Violation of non-compete may also pose a ground for a disciplinary termination of the employment contract or an immediate termination of the civil law contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.