In brief
Non-compete clauses may restrict employees’ professional activities after the termination of their employment only within narrow limits. Of particular relevance is the extent of the geographical scope and whether it is considered reasonable.
Key takeaways
- Geographical restrictions are permissible but must in particular:
- Be closely tied to the actual scope of the employer’s and the employees’ business activities.
- Not effectively bar employees from practicing their profession
- Carefully balance scope in terms of the material scope, duration and geographical scope to protect an employer’s legitimate interests while ensuring that employees’ career advancement is not disproportionately impaired.
Geographical scope of non-compete clauses
In addition to duration and material scope, the geographical scope is a key criterion for determining the validity of a non-compete clause. Section 36 of the Salaried Employees Act requires a balancing of interests: The non-compete clause must not unreasonably hinder the employee’s career advancement but should protect the employer’s legitimate interests. The broader the geographical scope, the more moderate the time or scope restrictions should be.
Non-compete clauses may cover individual regions, federal states, or all of Austria. The key factor is that these areas fall within the employer’s sphere of economic activity or that realistic competitive situations exist there, and that the respective employees were actually working in these areas. Particularly in international companies, a cross-border scope of application may also be permissible, provided that the employer and employees are actually working across borders.
Practical application: Which regions are permitted?
The decisive factor is a realistic competitive situation. In particular, the following regions are permissible:
- Regions where employers actually have customers or are economically active
- Adjacent areas with typical customer overlap
- Other areas as well, if market entry is being prepared
- Or the entire country or multiple states, provided the employer operates on a supraregional basis and competitive situations exist.
The prerequisite is always that the employees were working in the relevant area. If there is no genuine risk of competition – for example, in the case of less specialized work or short-term employment relationships – the employees’ interest in career advancement generally takes precedence.
What happens to excessively broad clauses?
If the geographical scope of the non-compete clause is too broad, the entire clause is not rendered void; rather, only the invalid portion is void. In the event of a dispute, courts automatically reduce the clause to a permissible extent (“partial invalidity”). In doing so, courts examine whether the restriction is objectively justified in the specific case and whether the employer has a reasonable interest. Thus, only the reasonable core of the clause remains enforceable.
Violations of non-compete clauses
In the event of a breach, contractual penalties may be agreed upon, capped at six times the employee’s last net monthly salary. Courts may reduce excessive penalties, taking into account financial circumstances, fault, and actual damages. Alternatively, employers may seek “standard” damages and enforcement of the non-compete clause, but not when contractual penalty has been agreed-upon (which also precludes a claim for injunctive relief!).
A current example
A recent court ruling illustrates how this balancing of interests works in practice:
A six-month non-compete clause prohibiting a bank employee based in Vienna from working in Vienna, Lower Austria, and Burgenland was deemed permissible by the court. The court justified this decision in particular by noting that a realistic competitive situation exists between certain regions of Lower Austria and Vienna – for example, when customers live in Lower Austria but work in Vienna and can therefore choose between bank branches in both states. The court emphasized that the employee could work in other federal states and in completely different business areas without restrictions, and that the duration of the non-compete restriction was only six months. However, the agreed contractual penalty was reduced by 50% because the former employer had not suffered any damage as a result of the breach. Since the employee, however, had knowingly taken up an almost identical position with a direct competitor immediately after the end of the employment relationship, no further reduction of the penalty was granted.