Blog » IS A NON-COMPETITION AGREEMENT FOR FREE VALID IN CASE EXECUTIVES IN HUNGARY?
IS A NON-COMPETITION AGREEMENT FOR FREE VALID IN CASE EXECUTIVES IN HUNGARY?
23 January 2019
Can the executive employee undertake a non-competition obligation after the termination of the employment for free? It seems that the Hungarian Supreme Court finds the limits of party autonomy elsewhere than the legislator. We summarise the merits of the judgment in our article.
The employer employed the plaintiff as a sales director from March 2015. Based on the labour contract, the plaintiff was an executive employee and had the powers to substitute the CEO.
In his labour contract, the plaintiff undertook not to carry out any economic activity for the competitors of the employee, unless the employer gives his consent. The parties also declared in the labour contract that they differ from the provisions of the Hungarian Labour Code and plaintiff is not entitled to any remuneration for the performance of the non-compete obligation.
2. Legal dispute between the parties
The employer fired the plaintiff during the probation period. The employee sued the employer based on the ground that the non-competition agreement without any remuneration is not valid.
On the contrary, the employer claimed that the non-competition agreement is valid. In fact, in case of executive employees the Labour Code provides the possibility to differ from its provisions to the detriment of the employee. In case of executive employees there are only limited provisions from which the parties cannot differ (eg. a pregnant executive employee also cannot be fired with ordinary termination). The provision that employees shall receive remuneration for the performance of the non-compete obligation is not listed among these provisions thus the parties are free to differ from it.
3. The decision of the Curia
The Curia, like in many other cases, has not supported the employer’s view in this regard. Although the Curia agreed that the non-competition agreement is not listed among the provisions of the Labour Code which prohibit to differ from them to the detriment of the employee.
Nevertheless, it is the essential condition of the validity of the non-competition agreement that the employer shall pay remuneration to the employee for the performance of his obligations. Indeed, the non-competition agreement restricts the fundamental rights of the employee and this restriction shall be compensated by the employer. This shall apply to executive employees, too.
With his position adopted in the decision, the Curia has widened the exhaustive list in the Labour Code which declares the provision it is prohibited to differ from to the detriment of the executive employees.
However, the Curia only stated that the parties cannot differ from the provision of the Labour Code which makes the non-compete agreement free. Thus, it may be concluded that the parties may agree that the employer pays less than the amount of the 33% of the base salary for the respective period which is a condition of the validity of the non-compete agreement in case of “ordinary” employees.
Nevertheless, if it is important for the employer that the employee does not start a competing activity, it is not worth to play with the numbers and save money on the non-competition agreement. Indeed, if the non-competition agreement is overthrown, the employer could lose much more money.
IS THE JUDGE BIASED BECAUSE OF UNFAVOURABLE JUDGMENT IN OTHER CASE?
Can a judge be disqualified from deciding the legal dispute on the grounds of bias if he has delivered a judgment unfavourable to the plaintiff in another case? Can a court be biased if the plaintiff has "challenged" a previous decision of the court before the European Court of Human Rights? In this article, we answer these questions by analysing a recent judgment of the Hungarian Supreme Court.Read more »
CAN INCOMPATIBLE WORKPLACE BEHAVIOUR BE A GROUND FOR DISMISSAL IN HUNGARY?
Refusal of employer 's instructions, unjustified absence, intentional damage: some cases where the justification for dismissing an employee is relatively easy to determine. What happens, however, if the employee does not commit a severe breach of duty similar to the one above, but his or her colleagues consider him incompatible, with whom it is impossible to cooperate, or even afraid of him or her. Can dismissal be justified by behaviour that is incompatible with others and creates disharmony in the working environment? In our article, we seek the answer to this question in the light of Hungarian judicial practice.Read more »
CAN A JUDICIAL ERROR CREATE HUNGARIAN JURISDICTION DESPITE A PLACE OF PERFORMANCE ABROAD?
Can a defendant, domiciled abroad, be sued in Hungary under the Brussels I Regulation in the event of defective performance of an international sales contract if the place of performance is abroad? Can the jurisdiction of a Hungarian court be established based on the fact that the lower court expressly established its jurisdiction at the beginning of the litigation? How is the EXW clause to be interpreted within the meaning of the Brussels I Regulation? In our article, we analyse the recent decision of the Supreme Court of Hungary.Read more »