We are all familiar with this clause, commonly referred to as the 'non-compete clause,' which is 'hidden' somewhere in the last part of every employment contract, usually adjacent to confidentiality clauses and general provisions.
This clause generally includes a prohibition on the employee, usually for a period of 12 months after the termination of their employment, from 'competing' with their employer. In its common wording, 'competition' is interpreted as establishing any contact with any client, employee, supplier, or partner of the employer, or performing work, as an employee, freelancer, or partner within the employer's 'field of business'.
Does including such a clause in an employment contract necessarily protect you, the employer, from a situation where someone who was recently your loyal employee suddenly becomes your biggest competitor? Someone who will 'steal" your clients and perhaps even your employees, and exploit the experience, knowledge, and connections they gained with you to harm your business?
Will applying to the court with a request for a restraining order against a former employee, in these circumstances, necessarily yield a positive outcome?
So that's it. It's not.
The rulings of the courts, regarding the question of the validity of a non-compete clause in an employment contract, are made while balancing the employee's right to freedom of occupation, and the employer's legitimate desire to avoid potential harm to their business as a result of an employee's departure.
The current Halakha is that the employer's interest should be preferred over the former employee's right to freedom of occupation, only in cases where the non-competition clause is reasonable and effectively protects a legitimate employer interest.
Accordingly, it was determined in the ruling that before the court limits an employee's occupation, it must examine whether, among other things, the following circumstances exist:
The existence of a trade secret – it was determined that an employee's freedom of occupation must be restricted to prevent them from unlawfully and in bad faith using a trade secret belonging to their former employer.
Special Training - In cases where the employer has invested significant resources in the employee's training, such as funding vocational training, the employee's freedom of occupation may be restricted for a certain period.
Special consideration for a non-compete clause – it must be examined whether the employee received special consideration, meaning a defined addition to their salary, for their commitment not to compete with the current employer in the future.
Probability and Proportionality – The court will examine the geographic scope of the non-compete clause (whether it applies to a specific city, or is valid 'worldwide') and the duration specified therein. A non-compete period of one year is generally considered reasonable.
The existence of a duty of good faith and trust – the employee's good faith must be given weight – it was determined that the higher the employee's position, the greater their duty of trust towards their employer.
It is important to note, regarding the circumstances detailed above, that this is not an 'exhaustive list.' Therefore, the court will consider each case on its merits, according to the totality of its circumstances.
Drafting a non-compete clause in an employment contract, as well as other relevant clauses in the agreement, is a complex matter that should be handled by a lawyer with experience in protecting your interests as employers.
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