In one of our previous articles (here), we addressed the question of whether the validity of non-compete clauses in employment relationships can be terminated based on a unilateral act of the employer.

In this regard, we discussed the ruling of the Court of Appeals in Belgrade, no. Gž1 1900/20 from March 19, 2021, which marked a significant shift in judicial practice. In this ruling, the court held that an employer who, by a resolution terminating the employment, releases the employee from the obligation to honor a non-compete clause established in the employment contract, is not required to pay the employee the compensation agreed upon in connection with the obligation to observe the non-compete clause.

Previously, the courts held the view that the non-compete clause was governed by the employment contract and that any changes, especially regarding the termination of the clause, had to be a matter of mutual agreement between the employer and the employee. This ruling, however, completely altered that perspective.

This practice of the Court of Appeals has now gained special significance, as this judicial stance has been confirmed by the highest judicial authority, the Supreme Court of Serbia (“SCS“), in its ruling no. Rev2 1330/22 dated February 28, 2024:

The agreed non-compete clause becomes ineffective when the employer, by written notice – a resolution terminating the employment, consents to releasing the employee from the obligation to perform tasks covered by the clause.

Background

The employee entered into an employment contract with the employer for a fixed term, which included a non-compete clause. The clause applied both during the term of employment and for the maximum statutory period of 24 months after the termination of employment, with compensation payable, as specified in the employment contract.

The employee’s employment ended by resolution of the employer, which stated that the employer released the employee from the obligation to honor the non-compete clause for the 24-month period following the termination of the employment, as stipulated in the employment contract, and that the employee was not entitled to compensation based on the employment contract for this reason.

The employee adhered to the non-compete clause after the termination of the employment, but the employer did not pay the agreed compensation for complying with the clause.

SCS’s Position

In this case, the SCS held that the non-compete clause is a facultative provision, meaning that it is a contractual agreement. The tasks covered by the non-compete clause, cannot be performed without the employer’s consent but if the employer agrees that such tasks may be performed, the non-compete clause becomes ineffective.

However, since the non-compete clause is an integral part of the employment contract, which is concluded in written form, the SCS found that the employer’s consent allowing the employee to perform the prohibited tasks must also be in written form.

Such written consent nullifies the application of the agreed non-compete clause, and its form cannot differ from the form of the clause itself. This requirement was met in the present case, as the employer had, in writing, released the employee from observing the non-compete clause after the employment ended, through the resolution on employment termination, which the employee did not contest in court.

The non-compete obligation with extended effect takes effect upon the termination of the employment. Since the employer’s resolution on the termination of employment released the employee from observing the non-compete clause, the employee is not entitled to the agreed compensation.

This article is for informational purposes only and does not constitute legal advice. If you need further information, feel free to contact us.