Jurisprudence on Exclusivity Pacts, non-concurrence and permanence in Spain. Limits and requirements

Exclusivity, non-concurrence and permanence pacts have limits and requirements.

The Supreme Court has issued jurisprudence on Exclusivity Pacts, clearly defining both the nature and limits of this institution.

According to the judgment of the Supreme Court of November 8, 2011, citing the judgment of the Superior Court of Justice of Catalonia of November 23, 2010: “the post-contractual non-competition agreement means a limitation of the constitutional right to work legally, justified in the interests of business. In view of this, the validity of the agreement is dependent on the existence of an effective business interest in exchange for adequate compensation, adding to everything that the prohibition of post-contractual competition cannot exceed two years.”

Likewise, the case law on Exclusivity Pacts continues to explain and detail the functions and scope of the said agreements, establishing a maximum period of six months (of duration) for workers and two years for technicians and senior managers, in relation to the non-competition agreement.

According to the judgment of the fourth courtroom of the Superior Court of Justice of Aragon of October 10, 2012, “the judgment appealed and, following the criterion set out in the aforementioned STS of 10.2.2009 (RJ 2009, 1445), considers the agreement partially null of non-competition and non-subscribed competition since, in accordance with the provisions of article 21.2 of the ET (RCL 1995, 997), could not exceed (the last) of six months: “The pact of non-competition after the termination of the work contract, which may not last more than two years for technicians and six months for other workers, will only be valid if the requirements are met that a) that the employer has an effective industrial or commercial interest in it, and b) that the worker receives satisfactory financial compensation.”

The purpose of this concurrency and exclusivity agreement is to limit the possible activity of the worker, which could benefit competing companies or simply comply with the total dedication pact.

This agreement may be applied during the term of the contract and for six months after the cessation (voluntary or involuntary) for ordinary workers, or two years for technicians.

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Adequate financial compensation, according to jurisprudence on Exclusivity Pacts

To be able to do this, the subject of the pact must be economically compensated, because the employer or the company has a “real industrial or commercial interest”, that is, it must have a reason why it can prove that the employee has knowledge of which the company wants exclusivity or non-concurrence.

In this sense, the Supreme Court, in its Judgment of October 26, 2016, in unification of doctrine, determined that: “Companies can only demand adequate financial compensation for an employee who fails to comply with a non-concurrence agreement. Criminal clauses must be left out of these bilateral writings.”

Similarly, the Superior Court of Justice of the Canary Islands, in its Sentence 117/2015 of February 18, clarifies what should be understood by financial compensation. Thus, it establishes that a post-contractual non-concurrence clause with an amount of 115 euros of compensation is abusive and, therefore, nullified.

“The small amount of €115 gross per month, agreed in contract as a counterpart, does not meet the legally required requirement to constitute adequate financial compensation, as it is insufficient to be able to allow the defendant to not work for two years in a concurrent activity with that exercised by the merchant.”

The previous point is also reflected in the jurisprudence on the most recent Exclusivity Pacts, as for example, in the judgment of the Superior Court of Justice of Madrid of October 29, 2011 that explains the when of the competition agreement and the requirements for its validity.

In the same sense, it is basic doctrine in the matter that concerns us in that indicated by the Supreme Court, for example, in the judgment of 5-4-2004 (rec.22468 / 2003) (RJ 2004, 3437) …: 21 / 01/04 (RJ 2004, 1727) and 02/07/03 (RJ 2004, 18), among others, in which it was said that the non-competition agreement for after the contract of employment was terminated, as soon as it restriction of freedom at work enshrined in article 35 of the Constitution (RCL 1978, 2836) and which is reflected in article 4.1.a) of RDL 1/1995, of March 24 (RCL 1995, 997), collected in article 21.2 of the same legal body, and in article 8.3 of Royal Decree 1382/1985, of August 1 (RCL 1985, 2011, 2156) (…),required its validity and legality, apart from its limitation in time, and the concurrence of two requirements.

On the one hand, that a commercial or industrial interest on the part of the employer is justified and, on the other, that an economic compensation is established. This means that there is therefore a double interest: for the employer, the non-use of the knowledge acquired in other concurrent companies and for the worker, to ensure economic stability, after termination of the contract.

The worker may rescind the said agreement with 30 days written notice, losing all rights related to full dedication and financial compensation. Also, those who received special training may be required to stay for a short period of time (two years maximum). If the worker decides to leave, he or she will have to pay the company compensation.

As for senior managers, their position is very similar to that of the ordinary worker. They will also have the exclusivity pact and the possibility of a full-time pact and, also of non-attendance during and after, always adhering to two requirements: that the employer has an effective commercial or industrial interest in it and that the senior manager receives a compensation agreed between the employer and the senior manager, in relation to said agreements.

Also, the issue of permanence is dealt with when the manager has specialized in a position in charge of the company and, in case of default, must also compensate for damages. Finally, the non-competition agreement can only be extended for two years.

Other Relevant Judgments of Jurisprudence on Covenants of Exclusivity

Judgment of the Superior Court of Justice of Navarre, of June 29, 2015

“In the case prosecuted, the specific circumstances that concur lead us to estimate disproportionately the solution adopted by the Court by condemning the defendant to return all that was received as compensation for the non-competition agreement for six years, considering more equitable the first of the solutions proposed by the appellant.

“Indeed if, according to Article 21 of the Workers’ Statute, the non-competition agreement could not have lasted more than six months, the obligation to reimburse the amount received cannot exceed that period, since that obligation to have adjusted the agreement to the legal provisions would be would be incumbent on the worker.”

Judgment of November 30, 2009 RJ 2010/252

Accepting the partial nullity of the post-contractual non-competition agreement, due to the lack of adequate financial compensation, and considering that there was no real proportion between the resignation to which the worker committed (one year of non-competition) and the economic income perceived (675 euros gross per month, which logically was limited to the ten months that the relationship lasted) and, above all, because that imbalance was accentuated, when understood in the court room, in the content of the agreed criminal clause that obliged them to return the double of what was charged for that concept.

Judgment no. 61/2012 of 30 January AS 2012 \ 253

“In particular, it is argued, with regard to the requirements of art. 21.2 of the ET that, in economic and business terms, the essential spring of the market economy lies in competition, which can undoubtedly be damaged when the worker goes on to exercise, either on his own account or on behalf of others, the same activity provided for his previous employer, who is deprived of clientele using the experience, knowledge, contacts or relationships in the time that depended on it, with production of damage, which is why the aforementioned statutory rule seeks to avoid this damage by establishing a period of abstention of the worker in the activity in exchange for timely remuneration, with what, in short, the commercial or industrial interest required by law is given, without any room for doubt, in the case prosecuted.

“The recent STS of 14-5-2009 (RJ 2009, 3001) (rec.1097/2008) reminds us that “the post-contractual non-competition agreement generates expectations for the worker (funds to compensate him for the damage that may be involved in having to work, after the contract expires and during the agreed time, to another activity, for which it may not be prepared), as for the employer (to avoid the damage that may involve the use by the worker of the knowledge acquired in the company in an activity that comes into competition with that one).”

Sentence 2523/2011 of October 18

It is evident that the contrast of jurisprudential doctrine allows one to observe the existence of non-compliances after the termination of the employment contract that are manifested by the infraction of the post-contractual non-competition agreement (article 21.2) of the ET and its antecedent in art. 74 of the LCT (RCL 1931, 1509) that for senior managers is included in art. 8.3 of RD 1382/85 (RCL 1985, 2011 and 2156).