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Non-compete clause and managers – assessment in accordance with corporate or labour laws

2014-08

Despite the fact that no legislative changes of the Companies Act ("ZGD-1") or to the Employment Relationships Act ("ZDR-1") have been made recently, a question arises in practice of whether a non-compete clause in an employment contract with a manager should be assessed in accordance with the provisions of a corporate law or labour law. The fact is that the competition clause is defined in both the Companies Act (ZGD-1) and in the Employment Relationships Act (ZDR-1).

In accordance with the provisions of the Employment Relationships Act (ZDR-1), the worker and the employer may agree, in an employment contract, that the worker shall be prohibited from carrying out competitive activities after the termination of the employment relationship if the latter has gained technical, production or business knowledge in carrying out work or in relation to work. However, the non-compete clause must be agreed in writing and a pecuniary compensation for its adherence must be determined as well otherwise the competition clause shall not apply. It may also be concluded with a manager or procurator.

The regulation in the Companies Act (ZGD-1) slightly differs. As part of the competitive clause, managers (Nota Bene that this term is used as a generic term for managers as persons which are appointed as an executive body of the company by a resolution of the competent authority, provided that the former have agreed therewith) should not assume any management role, work for any other company or pursue the activity of a sole trader which could compete with the activity of the company where they are currently in the capacity of managers. Moreover, the ZGD-1 provides that if a non-compete clause is to apply to managers also after termination of their function, this should be laid down in an Articles of associations.

When a person has entered into an employment contract as manager and not as worker (so-called management contract), the provisions of the non-compete clause should be interpreted in accordance with the corporate law and not labour law as laid down in the recent decision of the Supreme Court of the Republic of Slovenia (Judgement and Decision III Ips 67/2012, published in June 2014). The reasoning of the Supreme Court in the above decision concludes that, in case of conflicting provisions, the position and function of the (employed) manager, in the sense of his (in)dependence in relation to the company and in his work, should be considered, as well as the fact that the position of the manager is regulated by corporate law, while the institutions of the labour law are only applied subsidiary.

Any contract between a manager and a company is an individual employment contract that should be differentiated from other typified employment contracts concluded with other employees. The position of the latter is characterised by subordination or dependency in relation to the employer, which requires their protection in accordance with the labour law, while a managerial position is different in terms of their liability for performed work and economic (in)dependence. In the end, the manager makes independent decisions concerning the work of other employees and gives them instructions, which requires a different kind of his protection.
In view of the aforementioned, we would like to point out that each individual employment contract still needs to be assessed separately by taking its specificities into account.