What could the available solutions be for companies, from a Romanian legal perspective, to limit unfair competition that could be done by own employees? Specifically, “what can we do to limit the situations in which an employee might choose to provide the same services that the employer provides to customers in the marketplace?”. Sometimes even by competing our prices and servicing the same clients they work for as an employee of our company.
In principle, from a Romanian legal point of view, there are two main solutions that an employer can use in dealing with employees to limit unfair competition behavior on their part.
We detail and explain below how they work and how each of these are regulated in the applicable Romanian legislation:
1. Confidentiality Clause
As a basic rule, the confidentiality clause is effective only for the duration of the individual employment contract. However, regarding the length of time in which this confidentiality clause must be observed after the termination of the contract, the Romanian Labor Code does not specify a specific deadline, as clearly provided in the case of the non-competition clause (details below on non-competition clause).
Considering that certain type of confidential data requires protection for an indefinite period, we can assume that this clause must be observed very long after the termination of the employment contract.
On the other hand, it does not require specific remuneration for the purpose of loyalty or compliance with the clause by the employee, but it can be considered that the remuneration for this purpose is already part of the basic contractual salary that’s being paid to the employee. At the same time, the granting of additional remuneration for this specific purpose is not prohibited either, if this is agreed between the parties (employer and employee) upon signing this clause.
The confidentiality clause obliges the employee to refrain from collecting or transmitting any confidential information or data that he or she has become aware of as part of the job performed. According to the provisions of the Romanian Labor Code, in case of non-compliance with these obligations, the employee may also be obliged to pay significant damages to the company.
Before requiring an employee to sign such a clause, it is important for the employer to determine what sensitive and confidential information is to be protected. We also suggest clearly establishing, either in the individual employment contract or in the internal regulations of the company, the following important aspects:
If there are concerns that certain knowledge which the respective employee has acquired during employment may cause potential damages if he chooses to compete the company, you can negotiate a non-competition clause (we further explain below what this entails).
2. Non-Competition Clause
A non-competition clause represents a legal solution with a remuneration formula for the employee, in addition to the basic contractual salary. According to the provisions of the Romanian Labor Code, the non-competition clause can be agreed in the employment contract if the employer considers that, after leaving, the employee could compete in the employer’s market, by using the skills and knowledge acquired during employment.
The non-competition clause can only take effect after the termination of the employment contract with the employee in question. It can be enforceable for a period of no more than 2 years from the date of employment termination.
In other words, the non-compete clause activates only after the employee leaves the job and has no applicability for the period of employment. To be effective, the non-compete clause requires that a non-compete allowance be agreed between the parties and paid by the employer during the entire period for which it applies after employment termination.
The following aspects are important for a non-compete clause to be correctly enforceable:
ATTENTION: According to the provisions of the Labor Code, the non-competition clause cannot have the effect of completely prohibiting the exercise of the employee’s profession or the exercise of the specialization he possesses in the field in which he works. This is an important rule established by the Labor Code with reference to the non-compete clause.
In other words, the employer is prohibited from asking the former employee to terminate those specific activities that he carried out during the employment relationship, as long as the activities are not carried out for the benefit of the “competition” defined in the contractual clause. For example, a former sales representative at an auto parts distribution company cannot be barred from taking a similar position at a pharmaceutical firm. Similarly, an accountant working for an accounting services firm cannot be prohibited from performing the same work for a software development firm.
3. Loyalty clause
First of all, it is good to know that, according to the provisions of the Labor Code, the employee’s obligation of loyalty to the employer is intrinsic to the individual employment contract. It represents an assumed obligation of the employee in the exercise of his work duties, as per the Romanian Labor Code. Therefore, it isn’t necessary to explicitly insert it into the employment contract in the form of a separate clause, unless it is desired to retain the employee for a minimum period of time.
If it only aims to eliminate certain conflicts of interest or to retain the employee for a period of time, the use of a loyalty clause or obligation should not present a risk of non-competitive practice. However, if, through the loyalty clause, the employer limits the right of the employee to resign, then the question of a restriction of the latter’s free access to work can be seriously raised.
A loyalty clause can ensure not only an interest of the employer, but also one of the employee, depending on what is contractually agreed by the parties as result of negotiations.
In most situations, this type of clause establishes the employee’s obligation not to resign for a certain period of time, and in exchange for assuming the obligation, the company commits to a consideration, which is usually in money.
The consideration can be paid in different forms – either as a fixed amount granted on a certain date, or as monthly payments, during the period of validity of the clause.
Regarding the value of the consideration, the Romanian legislation in force does not establish a specific value that should be paid to the employee. Also, regarding its nature, the Labor Code does not establish anything, therefore, it can also be under the form of benefits in kind, such as a Stock Option Plan. Such a plan can extend over a longer period of time, several years, and at the same time benefit from a favorable Romanian tax treatment compared to a cash payment.
In the case of granting benefits in kind, it is essential that their value can be evaluated relatively easily, in order to be able to establish their return by the employee, in case the latter does not comply with the assumed contractual obligations.
