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Object: Non-competition agreement, undersigned by an employee and a competing company, finalized to the hiring of the employee.

Mr. M. B, and S. S.p.A., a joint stock company, respectively employee and employer, have jointly undersigned, on February 1st, 2004, a private deed with which the employee, against the payment of a sum of Euro 200.00 net per month, in addition to the sum agreed upon in the work contract, undertook to: 

privacy obligations

  • carry out his activity on exclusive basis in behalf of the employer, for the entire duration of the work relationship;
  • restrain from using, divulging, or communicating news and information acquired during the course of the work relationship ?

non competition accord -

  • avoid, for a period of two years following the termination of the work relationship, either in person or through a third party, to engage in any activity, including services rendered occasionally or subject to no compensation, in behalf of enterprises or organizations working in competition with the employer, and more particularly in the field of production, commercialization, and technical information of packaging adhesives and/or plastification.

    W. S.p.A wishes to know if the non-competition agreement, thus formulated, may be considered valid and effective, being interested in stipulating a work contract with Mr. M. B.

 

 

 
* * *
Firstly, it should be noted that the civil code expressly grants the possibility, for employer and employee, to stipulate an agreement setting limits to the employee?s activity, which may extend to a period following the termination of contract.

Art. 2125 of the Civil Code states that "an agreement limiting the performance of the employee?s activity for a period following the termination of contract is void if such clause is not specifically expressed in writing, if it does not include a monetary compensation paid to the employee, and if the bar is not confined within specific limits of object, time, and place. The duration of said bar can under no circumstances be set for a period longer than five years for a person holding a directing position, and three years for all other positions. Should a longer period be set in the agreement, it shall be reduced in the measure above indicated".

The purpose of the mentioned article is to be identified in the need to reach a fair balance between two orders of opposite interests: on one hand stands the employer?s need to preserve, against competition, the non-tangible assets of his company; on the other hand stands the employee?s need to not suffer excessive restriction in his professional activities.

First, we need to observe how the validity of such agreement is subordinated to the combined presence of every single element indicated in the quoted article, being an imperative law, which effects are thus not subject to any derogation.

In this specific case, in analyzing the private deed, object of the present opinion, we must draw attention to how such non-competition agreement may be considered void due to separate orders of reasons:

  1. On the voidness of the agreement due to disproportionate extent of the bar

    Paragraph 3.1 of the private deed appears to diverge from the policy relating to non-competition agreements, since the restrictions suffered by the employee, the way they are formulated in the written agreement, do not involve specific limits as to the object of the required performance.

    Paragraph 3.1 states, in fact, that the employee undertakes to keep from engaging in any activity, including services rendered occasionally or subject to no compensation, in behalf of enterprises competing with the employing company, and specifically, companies operating in the field of production, commercialization, and technical information of packaging adhesives and/or plastification.

    Nonetheless, we must underline how case law considers void a non-competition agreement when its extent is such as to compromise the execution of the concrete professional skills of the employee in such a way as to limit his income potential (see Court of Cassation, labour section, 10.09.2003, no. 13282; see also, in tal senso Court of Cassation no. 5253/2001)

    The legitimacy of the non-competition agreement is to be evaluated not in abstract, but in relation to the real professional status of the employee.

    In that regard we wish to note that Mr. M. B. was hired by S. S.p.A., on June 1st of 1994, at only 20 years of age, and that he has, presumably, exercised the greater part of his professional activity with the same company, acquiring a professional knowledge and experience that finds exclusive utilization in the same field of activity in which the employing company operates.

    For such reasons the clause contained in paragraph 3.1 may be considered void in violation of article 2125 of the Civil Code, which specifies that the object of a non-competition agreement must be contained within specified limits, as detailed in the aforementioned Supreme Court sentences. 

  2. On the agreement?s voidness due to non congruity of compensation

    The voidness detailed in point 1), in case of litigation, is to be ascertained by a Judge, through a factual analysis of the exercise and manner of execution of the employee?s work, so that the actual competences acquired by the employee may be determined.

Conversely, a second reason for voidness, as we?re about to illustrate, can be more easily demonstrated, and derives, directly and unequivocally, from a consolidated principle found both in labour doctrine as well as in jurisprudence. Both sources, in fact, define a non-competition agreement as an onerous contract subject to valuable consideration, and affirm the principle of due congruity of compensation weighted against the sacrifice required of the employee.

It is indeed in relation to the congruity of due compensation that we must view the express prevision of voidness contained in Art. 2125 of the Civil Code, as referring to the negotiation regarding not only symbolic compensation, but also clearly vile or disproportionate compensation as compared to the sacrifice required of the employee, and the reduction of his income potential (see Court of Cassation, no. 4891/1998, 10062/1994). In pursuing a judgement on congruity, we must consider the measure of the retribution, the territorial and objective extension of the ban, and the employee?s professional skills.

With reference to the contract undersigned by the parties, Art. 3.4 ? on retribution ? states that the employing company undertakes to pay Mr. M. B. thirteen salaries, each amounting to Euro 200.00 net.

Such amount cannot be considered congruous as it does not correspond to an adequate price in exchange of an extensive and general forfeiture of the right to work, though it being limited to companies operating in one specific sector, seeing that Mr. M. B. has built and developed his professional profile in companies operating in that field alone.

Through a further analysis of the specific case, the incongruity of the agreed compensation is all the more evident: indeed, in case of termination of the work contract, as of today, Mr. M. B., against the sum of Euro 2.800, received from the employer (14 months x Euro 200,00), agreed to not be employed for two years (!!!?) in the only field he knows, in which he has developed a professional competence, and which constitutes the sole area in which he may find employment.

With specific reference to the modality of payment of the compensation and its determinacy, we must note a recent sentence issued by the Milan Tribunal, changing the orientation of Jurisprudence, in which the payment of the same monthly amount, during the time when the work relationship is in force, was considered inadmissible:

" Pursuant art. 2125 of the Civil Code, the non-competition agreement must include ? under pain of voidness ? the payment, to the employee, of a sum which, representing the price of a partial waiver to the constitutional right to work, must be congruous to the sacrifice required of the selfsame worker, and which amount is necessarily determined at the moment of stipulation of the agreement: it thus follows that the prevision of the payment of compensation during a continuing work relationship is in violation of art. 2125 of the Civil Code, as it introduces a variable connected to the length of the relationship, conferring the agreement an inadmissible element of uncertainty." (see Milan Court, 18.06.2001).

In view of what thus far affirmed, we conclude that Mr. M. B. is not subject to the restrains detailed in the non-competition agreement undersigned, nor, as a consequence of it, should he be considered liable for the payment of any fines, given the predictable voidness of the clause subscribed on February 1st, 2004.

It is to be noted that the monthly sum of Euro 200,00 was paid as compensation for additional obligations ? including privacy and exclusivity of the work performance ? and not merely as the "price" of the non-competition agreement.



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