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  • The most loyal employee, or is it possible to sign a non-competition agreement in Russia?

The most loyal employee, or is it possible to sign a non-competition agreement in Russia?

"My team is the main asset," every second entrepreneur thinks so. Indeed, the team plays an important role and owns a lot of information. Yes, information can be protected as a trade secret, but there is some knowledge that is taken away "in the head", and you do not want it to get to a competitor.

Agreement non-compete (Non-compete agreement or NCA) is a contract under which:
  • The employee undertakes not to enter into employment and civil law contracts with direct competitors of the employer for a certain period after the termination of the contract with the present employer;
  • The employee undertakes not to engage in similar business activities as an individual entrepreneur or founder or participant of a competing business entity, not to become a General Director or a member of a collegial governing body of a competing legal entity, etc.;
  • In turn, the employer can pay remuneration to the employee for compliance with the non- competition policy.
Such an agreement is an employer's dream: you cannot worry that competitors will lure the employee to themselves and use the obtained knowledge and secrets. But we know that from the legal point of view, the non-competition agreement restricts constitutional rights. Let's try to find out if this is true.
What about abroad?
In many foreign jurisdictions, in particular in the United States, the principle of reasonableness applies to non-competition agreements. That is, such agreements are valid, but the court can limit the term, amount of compensation, or penalty for violation. It is worth noting that NCAS are prohibited in California, as they prevent the intensive development of Silicon valley.

In the Republic of Belarus, with the introduction of Decree No. 8 "on the development of the digital economy", residents of the hi-tech Park are allowed to use the institutions of English law, in particular, agreements on non-competition with employees and agreements with responsibility for poaching employees.
There are a number of requirements for such agreements:
  • The employee receives compensation for the obligation not to compete;
  • In case of compliance with the refusal to compete the employee is compensated in the amount of at least 1/3 of the average monthly earnings for the last year;
  • The subject of the obligation must be formulated very specifically (that is, you can not prohibit dealing with Finance or IT in principle);
  • The term of the obligation after termination of the employment contract may not exceed 1 year.
The restrictions seem reasonable and are aimed at achieving a balance between the interests of the employee and the employer, but Russian legislation and law enforcement practice are reluctant to accept this agreement.
Can I sign an agreement in Russia?
Article 37 of the Constitution of the Russian Federation establishes the right to work and to freely dispose of their abilities. Therefore, the ability to apply your experience, skills and knowledge cannot be limited (even if this knowledge is obtained in your company).

As follows from the provisions of article 168 of the civil code of the Russian Federation, an agreement on non-competition will be a void transaction due to its non-compliance with the requirements of the law, and therefore cannot entail legal consequences.

The Letter of the Ministry of labor of Russia dated 19.10.2017 No 14-2/V-942 "on concluding an additional non-competition agreement" explains that the non-competition agreement, being part of the employment contract, is valid until the moment of its termination. And in General, the provision restricting an employee's right to work violates labor legislation, so it does not entail any legal consequences. At the same time, if such an agreement will fix the non- disclosure of trade secrets, it will be valid in this part.

But not everything is so clear: judicial practice has begun to appear, confirming the legitimacy of such agreements.

Decision of the Savelovsky district court of Moscow in case No. 02-6305 / 2016 of December 5, 2016

Savelovsky court considered the case that the LLC entered into a non-competition agreement with an employee (who was not the General Director), and he became the General Director of a competing LLC and allegedly disclosed information that was not subject to transfer. This, according to the plaintiff, led to the transfer of 13 clients to a competitor organization.

The court reached the following conclusions. If there is no evidence that an employee has read information that is a trade secret and passed it on to third parties, the company will not be able to collect a fine for matching several clients. This fact cannot clearly indicate unfair behavior of the employee with whom the non-competition agreement was concluded.

Another outcome may be in a situation where the company's CEO is bound by a non- competition agreement.

Thus, in case no. A70-13409/2014 of March 16, 2015, the Arbitration court of the Tyumen region expressed the position that «linking a Director with the duty of non-competition with a legal entity is a generally recognized standard of conduct in many developed countries." The court pointed out that the defendant caused losses to the company in the form of lost profits by entering into contracts with existing clients from a similar legal entity created by him.

In case No. 33-23701 / 2017 of August 8, 2017, the employee demanded compensation for compliance with the clause on refusal to get a job with competitors within 12 months after the termination of the employment contract.

The Krasnodar regional court did not consider this condition discriminatory and refused to compensate the plaintiff, as the parties did not provide for any payments for compliance with the non-competition clause.

In another dispute, the court decided that the employee's obligation not to participate in competing activities for one year after the termination of the employment relationship worsens the employee's position in comparison with the conditions established by labor law (Appeal ruling of the Rostov regional court of March 4, 2013 in case No. 33-2634/2013).
If you are an employer

You can prevent an employee from disclosing information by entering a trade secret regime.

However, the right to work is constitutional and almost every specialist has a limited set of competencies, so the ban to hold similar positions after dismissal can be challenged in court (if the employee does not hold the position of Director or other managerial position – here the chances are much higher).

You can protect intellectual property rights in copyrighted works and restrict access to information, but you cannot prohibit the exercise of your ability to work, knowledge and skills, even if they are obtained in the course of activities in your company.

For example, the programmer has the education, skills and relevant experience that are all he does, so it is impossible to forbid him to program. You can try to specify the type of activity: for example, the development of SOFTWARE for insurance, mobile games, etc. The narrower and more precise the niche is formulated, the more likely the employee is to fulfill the non- competition agreement.

In the Russian legal reality, you probably won't be able to find a legal defense in the event of a violation of the NCA. But entering into such an agreement can be a psychological incentive for an employee, especially if you pay them to refuse to compete.

If you decide to use this tool, then do not enter into such an agreement with all employees.
Sign it only with the most valuable, key employees, discuss the terms individually and enter into the NCA as a separate agreement, and do not insert it into the employment contract, as otherwise it will be valid until the termination of the employment contract.
If you are an employee

Although such an agreement is unlikely to be valid in the Russian Federation, we do not recommend accepting a clause that restricts your right to work for competitors after termination of your employment contract. Of course, if you are willing not to work in similar positions for a certain time, discuss with your employer specific types of activities, non- competition deadlines, and compensation.
If you are a CEO

Do not behave in bad faith: regardless of the validity of the NCA, your actions to create competing firms and poach customers may be qualified as causing losses to the original company.

Thus, although article 421 of the civil code establishes freedom of contract, Russian labor legislation is still quite paternalistic in relation to the employee. Therefore, such a tool for protecting businesses from the" leakage" of valuable personnel and ideas as a non- competition agreement does not work as in Western jurisdictions. However, when entering into an NCA, both the employer and especially the employee should carefully consider all possible consequences of such an agreement.


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