Non-competition and permanency agreement

Currently very few acquisition processes do not address the issue of the non-competition pact and permanence in the company. However, both figures have their own specific legal regulation. The regulation of this type of agreement is contained in the Revised Text of the Workers’ Charter (WC) (Ley del Estatuto de los Trabajadores). Also, in Royal Decree 1382/1985, of August 1, 1985, which regulates the employment relationship of Senior Management staff. 

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What is an exclusive or non-competition agreement?

It is  one under which an employee undertakes to provide his or her services to a single employer. That is, not to work simultaneously, although differently, for different employers under various employment contracts. It is constituted as an agreement that regulates the execution of the employment contract and limits the generic freedom of contracting. The purpose of this agreement is to ensure that the worker’s entire production capacity is focused on a single company. In practice, this type of agreement is very common in contracts between employers and management staff. 

Article 21.1 (WC) forbids the employment of a worker for several different employers in two situations. 

• When there is unfair competition. 
• When full dedication is agreed by means of an express economic compensation. 

It should be mentioned, first of all, that this is not a legal prohibition of competition. It is an agreement of wills between the parties on the full dedication of the employee to the company. In consequence, the effects that it will have arise from the terms expressly agreed, and not from the Law. 

[We recommend the reading of: Linking Theory. When is a contract ordinary labor? When is a contract Senior Management? When is it commercial? Evolution in time of crisis]. 

Where is  its foundation?

The basis for the validity of the agreement is cemented on Article 3.1.c) (WC). According to this article, the rights and obligations concerning the employment relationship are regulated by (1) the legal provisions. (2) Statutory provisions. (3) Collective agreements. (4) The will of the parties as expressed in the employment contract. (5) The will that is limited by the legality of the object or the agreed upon clauses. (6) Mandatory regulatory provisions. 

In addition, it can be agreed for a fixed period of time or for an indefinite period of time. It is normal to agree without establishing any specific term, although under certain circumstances a fixed term can be set. 

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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.

Is it possible to introduce mandatory exclusive dedication through collective bargaining?

At this point, as with the post-contractual non-competition agreement, individual rights cannot be disposed in a collective context. These clauses introduced ex novo in collective bargaining cannot be applied to existing employment contracts. Although they can be voluntarily accepted by the worker, why? Because nothing prevents the exclusive dedication agreement from being born after the employment contract. 

The amount to be received by the worker as compensation is considered an essential content of the contract. And, even if there is agreement as to the conclusion of the contract, the company’s possibility of claiming exclusive dedication is closed. The Courts are not competent to decide and fix the compensation. Therefore, the law only requires the parties to expressly set the economic compensation. But it is quiet about how to calculate the amount to be received by the worker. Therefore, it is up to the parties to determine their respective interests. And also the determination of the amount of compensation. 

Non-competition agreement after the employment contract has expired

As for the non-competition agreement after the termination of the employment contract, it may not be longer than: 

• Two years for the technicians. 
• Six months for other workers. 

And, it will only be valid if the following requirements are fulfilled: 

1. That the employer has an effective industrial or commercial interest in it. 
2. When the employee is satisfied with adequate economic compensation. 
3. The agreement must be expressly provided for in the contract. 

The legislator does not set any formal requirements, being able to do so in writing or verbal. However, it would be advisable that some aspects such as the duration or amount of the financial compensation be stated in writing. This would avoid subsequent problems of proof. The only requirement is that the economic compensation: “be differentiated within the salary structure, expressly compensating the exclusive dedication of the worker to his work in the company”. This does not mean that the compensation established cannot consist of a higher remuneration than the one conventionally fixed, although the decisive factor is that it must be expressly stated. 

Agreement to continue in the company

It consists of a commitment by the worker not to extinguish the work relationship during a certain period of time. Provided that he or she has received a professional specialization at the expense of the employer. And, expressly waiving the possibility of resignation with prior notice provided for in Article 49.1.d) WC. The employee signing this agreement waives the right to resign “ad nutum” or “sine causa”. 

The following requirements must be fulfilled for the agreement to be valid: 

Requirements

• This is an individual agreement between the worker and the employer. A collective agreement cannot establish a minimum duration of stay in the company. 
• The agreement must be formalized in writing, since it is a requirement “ad solemnitatem”. 
• There must be a specific cause that justifies the permanence pact. Specifically, the professional specialization that the worker receives, understanding that this must be provided by the company. In this respect, the duration of the course does not matter if the worker has improved his or her professional training by completing it. The legislator excludes any specialization that does not involve any cost for the employer. In other words, those that are subsidized by organizations outside the company. 
• It must have a certain and perfectly determined duration, which in no case can exceed two years. Why? Because the legislator considers this period to be reasonable for the employer to recover the investment made to specialize the worker. However, the agreement subject to a duration of more than two years will not determine its total invalidity. Although the clause will be partially null, in all the time that exceeds the maximum duration legally established. 

Breach of the duty to stay

The breach of the duty to stay by the worker may occur (1) directly or indirectly. (2) By causing the employee to be dismissed or by requesting leave of absence during the term of the agreement. 

If the Court finds this infringement, it will impose on the employee the obligation to compensate the employer for the damages caused. The amount of the indemnification must be agreed by the parties, and if there is no agreement, the judge will decide. If there is no agreement, the judge will set the indemnity taking into account the cost incurred for the professional specialization of the worker and the damages caused. 

Conclusions

In conclusion, the worker’s activity will be lawful unless it is qualified by the commercial law as unfair. In order to classify a service or activity as unfair, case law requires that (1) It takes place within the same branch or sector of production of the company. (2) That there is an actual or potential damage to it. For this reason, the search for profit is irrelevant, as is the authorization of the employer. In addition, the agreements may be terminated, at the will of the employee. However, the employer must be notified in writing in advance (at least 30 days). 

In relation to the above, we highlight the following sentences, which clearly define the nature and limits of these institutions. 

• The Supreme Court’s Ruling of October 26, 2016. 
• The Ruling of the Canary Islands High Court of Justice of February 18, 2015. 
• The Ruling of the High Court of Justice of Navarra of June 29, 2015. 
• The Sentence of the Supreme Court of 8 November 2.011. 
• Sentence of the 4th Section of the High Court of Justice of Aragon, 10th October 2.012. 

Regarding senior management, the regulation of these agreements is very similar to the regulation of regular workers. But with the peculiarity that the senior management staff will not be able to enter into other contracts with other companie unless he/she has the authorization of the employer or a written agreement to the contrary. The authorization of the employer is presumed when the connection with any other entity is public. Provided that it has not been excluded in the employment contract. 

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