Throughout the working relationship, employment contracts must be performed in good faith, both by the employer and by the employee.
At the end of the employment contract, employees regain their independence. Even after their contract has ended, and even in the absence of clauses of this type, employees must refrain from acts of disloyalty and unfair competition in respect of their former employer.
Is it possible to refuse to sign a non-compete clause?
Can employers require employees, once their employment contract has ended, not to engage in any form of competition (including by fair means)? Employees cannot be bound by this type of obligation. It is only by mutual agreement that employers and employees may specify in the employment contract that the employee is to be prohibited, for a period of time after leaving the company, from performing similar activities so as not to prejudice the interests of the former employer by operating as a sole proprietor.
What checks should be made before signing a non-compete clause?
At the time of signing, the non-compete clause must satisfy the following conditions for it to be valid:
- the employee must be 18 years old or more when the agreement is signed;
- the employee may be prohibited from competing with their former employer as a self-employed worker, but not as an employee of another company. In fact, employees are free to seek employment, and to highlight their previous professional experience, with other companies in the same sector;
- the clause must relate to a specific professional sector and to activities similar to those of the employer;
- the clause must be limited to a period of 12 months from the end of the employment contract;
- it can cover, at most, the territory of the Grand Duchy of Luxembourg (the clause must be geographically restricted to localities where the employee can actually compete with the employer, considering the nature of the company and its reach).
What checks should be carried out after leaving the company?
An employee cannot be bound a the non-compete clause after they have left the company if:
- their yearly salary or earnings at the time of leaving is less than EUR 50,298.38 (index 737.83); or
- they are dismissed with immediate effect for serious misconduct and the dismissal with immediate effect has been declared unfair by the labour tribunal; or
- they are dismissed with notice and the employer has failed to give the notice period required by the Luxembourg Labour Code.
To what extent can an employee be bound by an illegal non-compete clause?
An employee cannot be bound, in any way, by a non-compete clause under the following circumstances:
- if the clause is constituted by an oral agreement; or
- if the employee was a minor when the clause was signed; or
- if the employee's annual earnings at the time of leaving is less than EUR 50,298.38 (index 737.83); or
- if the employee has been dismissed with immediate effect for serious misconduct and the dismissal with immediate effect has been declared unfair by the labour tribunal; or
- if the employee has been dismissed with notice and the employer has failed to give the notice period required by the Luxembourg Labour Code.
Under the following circumstances, the clause will not be deemed to be null and void in its entirety, but its effect will be reduced:
- the ban on working as an employee for a competing company, and from competing with the employer as a self-employed worker, will be reduced to a ban on competing with the employer as a self-employed worker, since the non-compete clause must be limited to the area of entrepreneurship and may not prevent the employee from taking up a job with a new employer. Employees are, therefore, entitled to work for a competitor even if they are bound by a non-compete clause prohibiting them from working for another company in the same sector. In this case, the application of the illegal clause would be reduced and its effect would be limited solely to the activities for which the ban is authorised by law, namely, the operation of a sole proprietorship;
- non-compete clauses that would prohibit employees from working in any sector in Luxembourg would be reduced to a specific professional sector and to activities similar to those carried out by the employer;
- non-compete clauses that may extend beyond the territory of Luxembourg would be reduced to localities where employees could actually compete with their former employers and, at the most, to the territory of Luxembourg;
- clauses that may require employees to refrain from competition for a period of more than 12 months would be reduced to a period of 12 months.