Troublesome contract clauses in the employment agreement

Non-compete clause

Although the conditions imposed by the employer observe the regulations, they can prove to be troublesome for employees, who probably don’t always appreciate the significant effect the clauses have on their contractual rights and remedies.

“We surely come across with a variety of legal challenges dealing with employees, wherein employers or employees get sued. The employees however are feared. They are satisfied with leaving a job where the climate isn’t favorable to them and it is quite hard to convince them that they are perfectly entitled to claim their rights,” Andreea Lisievici, attorney at Tuca Zbarcea & Associates told Wall-Street.

As for the non-competition clause, this is the most often restriction under which the employee agrees not to pursue a similar profession at a competitor or to start a business after the termination of contract and gain competitive advantage by using confidential information about their former employer. The non-compete clause or covenant-not-to-compete clause is effective after the termination of contract, spreading over 6 months at the most, or 2 years for top management positions.

What many employers don’t know is that if certain conditions are not clearly stipulated in the employment contract, the clause can be declared unenforceable.

“The covenant-not-to-compete clause must be very clearly stipulated, as to state the type of activity to be performed by the employee or the type and characteristics of the market wherein the employee is banned to be engaged upon. Furthermore, the provisions must define the geographical area deemed off-limits to former employee, as well as a specific time frame before the former employee could seek a job in a similar field, enough to confer the employer the comfort that the employee is not carrying the confidential knowledge of the company’s inner activities”, said Lisievici.

Companies tend to intimidate employee

Another detail that employers could let slip is the indemnity to be granted to the employee, whom, although left the company, remains on the sideline waiting for the time frame defined in the contract to pass.

If this amount is not stipulated, or if the employer refuses to pay compensation after the termination of the contract, it is very likely to result in a legal action which could end in a court decision against the employer. “This compensation is negotiable and should be higher than half of the gross salaries received by the employee over the past six months”, said Daniela Kovacs, consultant with Advice.

Nevertheless, Ovidiu Vilceanu says there are very few companies that actually insert these clauses in the employment contracts. “In general, companies want to intimidate the employee and to keep him alert. Very few companies stipulate the non-compete clause, because afterwards they would be bound to pay the financial compensations after the termination of the contract, which could be translated into a loss for the companies”, Vilceanu commented.

Moreover, this clause started to lose ground for a while now and to be less used due to the provisions set forth in the Labor Code – it is applied to employees who benefited of training courses, said Bogdan Toth, managing partner of HR4U recruitment firm.

Employee can pay damage to companies

The non-compete clause generally appears in finance, banks, IT&C or telecom industry.

It is usually contained in department managers’ contracts, top managers or in case of employees in key-positions. When an employee has agreed to include such a clause in their employment contract and resigns, the employers usually pay several salaries to stimulate the employee to remain or not to leave immediately after to a competitor, Vilceanu noted. This type of financial compensation may or may not be stipulated in the employment contract.

The employee’s obligation to his former employee in case of a breach of non-compete clause contained in the contract is to return the indemnity and the payment of damage, in case of a court decision in favor of the employer.

However, one of abusive clauses, and yet often practiced, refers to the company’s request to be informed on any job offer the employee receives from a competitor. In case an employee in top management receives a job offer from a competitor, and decides to honor it, the damages he or his new employer would be liable to pay can vary between 10,000 and 100,000 euros, said Petra Votiski, country manager of Human Value International executive search company.

Confidentiality clause

The non-compete clause can cause problems, especially in times of crisis, when many employees decide to seek for a stable job and completely ignores the provisions arising from the hiring contract.

Therefore, the employee can remain unemployed and still with high amounts to pay to the company. “On the other hand, if the employer discharges a person with whom it is bound to comply with the non-compete clause, the company is obliged to pay a monthly paycheck, although its budget can be severely affected by the crisis,” said Petra Votisky.

Another addendum imposed by employers to the employment contract can be the confidentiality clause as to ban the disclosure of secret information regarding clients, value of pay packages or policies and operation of the company. If the employer is not clearly defining what information is confidential and which not in the contract, the clause may be deemed as unenforceable.

The company should also stipulate the financial compensation it additionally gives to the employee, said Daniela Kovacs. In certain cases, the company can demand the employee to prove that he doesn’t possess any confidential documents or software.

Employees who leave pay their training costs

Another clause that could come back to haunt employees, is the condition referring to the professional development. One of the information that is usually passively agreed upon is the reimbursement of professional development expenses related to their duties and responsibilities if the employee decides to leave the company before the date stipulated in the hiring contract.

Under legal provisions, the employees who benefited of training or professional development courses that spread over more than 60 days are not entitled to demand termination of employment contract for at least three years since the ending of training or professional development courses.

“If you are student or recent graduate or you have narrow knowledge or work experience, a company will offer you a program for your training. If I, as a company, decide to train you, I expect you not to leave your job until I recover the investment or until I record a profit from your knowledge achieved during the training period”, Kovacs said.

The employees who rush into looking over the contract terms or those who are little informed on these details can easily fall in the employers’ trap when they sign the employment contract together with a collaboration agreement.