Some labour law pitfalls.

The former employer cannot restrict employees' right to work for competitors

In contrast to the confidentiality clause, the clause which restricts employee's right to work for the competitors is null and void.

At the beginning of employment almost every employee faces numerous documents and contract appendixes which impose various obligations during the employment and afterwards. There are additional agreements, contracts or just clauses in the employment contract which refer to keeping business information confidential and limiting the right to work for the competition for a specific term after the end of the employment. Often such documents are signed without being read in detail by the employee and the latter comes for a legal advice later.
There were cases that the employee pays attention to the labour agreement only after the former employer has brought a claim against her to pay compensation or damages.

Trade secret
When the employers enter into an employment contract, they aim to fully protect their interests. To be able to claim liability, they shall determine explicitly and exhaustively what should be understood under the term trade secret/confidential information. The Trade Secret Protection Act (art. 3) contains a definition for trade secret - any commercial information, know-how and technological information which meets all of the following requirements: 1. it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; 2. it has commercial value because it is secret, and 3. it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
Usually, the data and the information which is confidential is determined according to the specifics of the employer’s activities designated by the employment contract, in an explicit order or in the Internal Labour Rules. Disclosing of confidential information might lead to disciplinary dismissal – this breach is “grievous” pursuant to the Bulgarian Labour Code (LC). If, however, the employer decides that they have suffered material damages because of employee's behaviour, they can sue her according to the general claim procedure and in this case the burden of proof is on the employer to prove the amount of the damages and that the damages are caused intentionally.
Often the employment contract arranges the compensation for breaching this clause. Due to the nature of the employment contract and the imperative principle of limited financial liability of the employee, such clause is null and void. If damages are claimed, they must be proved by the employer according to the general claim procedure.

Prohibition to work for competing employers after leaving
Many employers, including large international companies, insist on the existence of such restrictions and sanctions in contracts for non-compliance. The prevailing opinion in theory and case law is that this clause is null and void. It is void not only when it is present in the employment contract, but also when it is in the form of a declaration, an agreement, a separate civil contract. The reason - regardless of the form, the clause is concluded during and on an existing employment relationship between employer and employee and its removal from the text of the employment contract does not change its employment nature. This clause does not exist on its own - if the employment contract had not been concluded, this clause would not have been concluded either. Therefore, as an integral part of the employment relationship between the parties, it is subject to the mandatory regime of labour law.
The Law on Protection of Competition, repealed in 1998, provided for the restriction of the right of certain categories of natural persons to carry out activities competitive with the activities of their former employers for a period of up to 3 years. In 1998, this ban was lifted.

Case law of the Supreme Cassation Court
In the last few years, the Supreme Cassation Court has ruled on the invalidity of the restricting the performance of competitive activity by employees for a certain period after the termination of their employment contract.
The court interpreted that such a clause contradicts the constitutionally recognized right to work and that restricting the right of future employment is invalid (moreover - the employer has no right to impose a ban on its employees who specialize in a particular field not to exercise their profession after termination of employment).
The prohibition, although not related to the content of the employment contract, imposes an obligation on the employee in a certain period not to enter into employment or civil relationships with a competing company, which agreement contradicts the provisions and principles of labour law.
The invalidity of the employment contract is declared by the court. Only individual clauses of the employment contract may be declared invalid.
Please note that if, because of such a clause, an employee has received remuneration unrelated to the work she does, and in order to be loyal to the employer, the court will order her to return the amount received when declaring such clause as null and void.

Recommendations:

  1. The employee shall strictly comply with the obligations, especially those related to loyalty to the employer and non-disclosure of confidential information both during and after the termination of the contract; if the information is not explicitly defined as scope and content, the employer cannot hold the employee liable for breach of this obligation.
  2. A clause restricting the employee from working for a competitor of the former employer for a certain period is null and void, as is the agreed penalty for non-compliance with this obligation.

Filled under Publications

About the author

Encho Dinev

For the last 25 years I am advising the real estate services, employment and labour services, commercial and labour disputes, public procurement procedures, commercial contracts, litigation, work and residence immigration services, non-discrimination, transfer of employees. Before founding KDBM with my colleagues, I worked for 15 years alongside most of them and specialised in labour law, construction law, immigration law, posting of workers, business restructuring, hire and fire, furlough, insurance law, and the GDPR in working environment.

Read more