It is common for employers to invest in the development of their employees’ skills and knowledge, which consumes a significant amount of regular income, while employees have access to high technologies and the employer’s work processes.
Of course, it is in the employer’s interest to retain an employee in whom they have invested significant resources, but also to protect themselves from the possibility that the employee decides to unilaterally terminate the employment contract and use all acquired knowledge and information in their work with a new employer. Such situations are not rare and cause significant damage to employers. Therefore, employers resort to some of the solutions permitted by the Labor Law, which are unfortunately often abused, leading to court disputes.
It is often the case that the employer and employee agree that the employee must return to the employer all amounts spent on their education and training, for further schooling, for participation in various seminars and conferences, for taking certain courses, etc.
However, there are situations, although not as frequent as before, where the employer and employee stipulate a contractual non-competition clause in the employment contract. This leads to additional problems and court disputes because employers often draft such clauses too broadly and generally.
Legal Protection for Employers
Article 102, paragraph 1 of the Labor Law stipulates that the employer and employee may agree that for a certain period after the termination of the employment contract, the employee may not be employed by another person who is in market competition with the employer and may not enter into contracts for their own account or for the account of a third party that competes with the employer (contractual non-competition). Such a contract may not be concluded for a period longer than two years from the date of termination of the employment relationship.
A contractual non-competition clause does not bind the employee if its purpose is not to protect the legitimate business interests of the employer or if it disproportionately restricts the employee’s work and advancement, considering the area, time, and purpose of the prohibition in relation to the legitimate business interests of the employer. The law prescribes cases of prohibition and nullity of such provisions, as well as cases when the contractual non-competition clause ceases to be valid.
Thus, the non-competition clause must be limited: temporally: a maximum of two years from the termination of the employment relationship; geographically: e.g., within the Republic of Croatia or in the markets where the employer operates; and by the legitimate interest of the employer to protect their business from competition.
In case of violation of the contractual non-competition clause, a contractual penalty may be stipulated, and if only a contractual penalty is provided for the case of violation of the contractual non-competition clause, the employer may, in accordance with the general provisions of mandatory law, only seek payment of that penalty, not the fulfillment of the obligation or compensation for greater damage. Although the provisions mentioned are quite clear, in court disputes where employers seek payment of the contractual penalty, employees claim that they are not obliged to comply with such a request from the employer because the provision on the contractual non-competition clause is general and threatens the constitutional right of the employee to work.
