The subject of this MA thesis is a non-compete clause in a contractual employment relationship. It is a type of non-compete obligation that exists besides the prohibition on competition. The term non-compete clause is nowadays a well-established term which designates a contractual non-compete obligation. It restricts the worker after the termination of the employment relationship, whereas the prohibition on competition or legal non-compete obligation takes effect during the employment relationship. In our legal area, the non-compete clause was implemented for the first time with the Employment Relationship Act of 1990 (Act-90) which regulated the subject in three paragraphs of Article 7. As the law did not encumber the contracting parties equally by reason of its weaknesses, it became the subject of constitutional judgement. For this reason, the two paragraphs of Article 7 were abrogated.
The non-competition clause is a provision in the contract of employment which obligates the worker after the suspension of employment relationship if the latter is terminated in accordance with regulations as laid down in the Employment Relationship Act of 2013 (Act-1). It is an institution which protects the employer's legitimate interests, their know-how, and encroaches upon the institutional rights of the worker. In consequence, the worker is entitled to wage compensation if the current wage is not equivalent to the previous one in observance to the non-compete clause. The institution is prescribed in the Act-1 and includes all the most significant elements of the non-compete clause which must be agreed upon by the contracting parties prior to the conclusion of the employment contract. The Act does not regulate the contractual penalty, which serves as a civil sanction in case of disrespect of the non-compete clause of the worker. As a result of unregulated law, the penalty became the subject of judicial review many a time. With standard case law, the Supreme Court ordains the lower courts that the contractual penalty is admissible in such cases. Ever since the institute's development until now, the case law was of paramount importance, especially after the cancellation of Paragraphs 5 and 6 of Article 7 of the Act-90, which left behind a legal vacuum. By reviewing the case law, we come to a conclusion that the majority of difficulties arise from granting and determining adequate compensation, calculating the scale of the penalty payment, and allowing the resignation from the said clause by the employer, irrespective of the law’s clarity and transparency about the matter.