Prohibition Of Competition In Labor Law Contracts - Contract of Employment

INTRODUCTION

Employers, business organizations, customer portfolios, production, and marketing methods affect commercial life and continue their activities in a competitive environment with confidential information that they do not want to be known by everyone. The employee, who learns the employer's business secrets and customer portfolio, has the possibility of harming his former employer by using this information obtained after the termination of the employment contract. In order to prevent this damage, employers may request that the registration of competition at the time of the conclusion of the employment contract or while the employment contract is in progress, which prohibits the employee from working in a competing enterprise from the termination of the employment relationship and opening a competing enterprise on his own account, or that the prohibition of competition is regulated by a separate contract. Since this regulation limits, the economic future of the worker, the contract in question is subject to a number of limitations. In this article, we will especially touch on these issues.

Obligation Of Non-Compete

The obligation of non compete is included in the scope of the employee's duty of loyalty to the employer. The duty of loyalty, while the employment contract is in progress arises directly from the employment contract. In Turkish law, although the employee does not have a legal obligation that requires that not to compete with the employer after the termination of the employment contract; The parties may agree that the employee shall not compete against the employer after the termination of the employment contract by non-competition registration or a separate contract which they shall put into the contract. The provisions regarding the non-competition agreement, which limits or completely eliminates the employee's right to compete for the period after the termination of the employment contract, are regulated in the Turkish Code of Obligations No. 6098 ("TBK").

Non-Competition Agreement

The prohibition of competition means that people who do business in the same field are prohibited from competing with each other. If the employee's prohibition of competition with the employer is intended to continue after the termination of the employment contract, the parties must agree separately and explicitly by contract. In non-competition agreements, the party subject to the prohibition, in other words the worker, voluntarily limits the economic sector and the economic activity opportunity .The non-competition agreement is a contract that includes the fact that the employee does not engage in any activity that would constitute competition with the employer in a certain field of activity, in a certain geographical region and within a certain period of time after the termination of the employment relationship between them due to the employer's recognition of his customers or learning about business secrets during the employment contract.

The purpose of the non-competition agreement is to prevent the employee from using the information he has learned in the enterprise during the contract in such a way as to compete with the employer against him after the termination of the employment contract.

According to Art. 444/1 of the Turkish Code of Obligation, "... the employee may undertake in writing against the employer to refrain from competing with him in any way after the termination of the contract, in particular from opening a rival business on his own account, from working in another competing enterprise or, apart from entering into any other kind of beneficial relationship with the competing enterprise."

In line with this provision, the subject of the non-competition agreement is that after the termination of the employment contract, the employee does not perform any work to compete with his employer on his own behalf, does not operate in a competing organization, is not a partner in a competing organization and is not related to a competing organization even in any capacity other than partnership.

First of all, it should be noted that if the parties have not agreed on a prohibition of competition, it is possible for the employee to use the information obtained in the employer's workplace and the customer environment and to compete with his former employer.

Conditions of Validity of the Non-Competition Agreement

In order to ensure the protection of the worker, the legislator has limited the principle of freedom of contract and stipulated that the non-competition agreement can be established in a valid manner. These conditions are as follows;

The existence of an employment contract,
Conclusion of the contract in writing,
The parties have the capacity to act,
It is the existence of the employer's rightful interest worth protecting.

All of these conditions must be together in order to be able to talk about a valid non-competition agreement. Likewise, in order for the non-competition clause added to the employment contract to be valid, these conditions must exist.

a. Existence of an Employment Contract

In order for a non-competition agreement to be established, there must be a service relationship between the parties. In order to register the prohibition of competition or to conclude a separate contract in this regard, the prohibition of competition may be decided regardless of whether the employment contract is of a definite or indefinite duration or partial or full term.

b. Conclusion of the Contract in Writing

In accordance with Article 444/1 of the Turkish Code of Obligation, the written form is one of the conditions for the validity of the non-competition registration. Since the legislator does not stipulate a special form requirement in Article 444 etc.of the TBK, it will be sufficient for the prohibition of competition agreement to be made in ordinary written form, that is, in written form and wet signed.

The purpose of regulating the written form as a condition of validity in the law is to protect the worker by ensuring that the employee is informed about the scope of the prohibition of competition. In this context, the written form has the character of both warning and documentation.

TBK 14/1 "It is obligatory to have the signatures of the borrowers in the contracts foreseen to be made in writing" . In this context, in the registration of the prohibition of competition, as a rule, it is sufficient to have only the signature of the worker, since the employee is in debt. If a counter-act is undertaken by the employer in favor of the employee, the signature of the employer must also be present.

c. Capacity To Act of the Parties

General Provisions are applied regarding the capacity to act of the employer, which is one of the parties to the competition agreement. On the other hand, a special regulation has been introduced in accordance with Article 444. of the TBK in terms of the capacity to act of a worker of the other party to the contract.

In this context, for the non-competition condition to be valid, the employee must first have the capacity to act at the time the non-competition registration is made. If the employee does not have the capacity to act at the time of the conclusion of the contract, the registration of the prohibition of competition is void.

d. The Employer Has a Legitimate Interest Worth Protecting

The purpose of the non-competition agreement is; we have stated that the employee is to prevent the information obtained about the work or workplace within the employment relationship from being used in a competing enterprise after the termination of the employment contract. Therefore, the information obtained by the employee about the work and workplace during the period when the employment contract is valid, in other words, during the period of working under the former employer, must be of a kind that will cause damage to the employer if used in the competing enterprise.

In the case that the information obtained during the working period is indeed confidental and /or obtained by competitors.There needs to be information that will enable it to make serious gains in favor of competitors.

In this context; In order for the non-competition agreement regulated in Article 444/2 of the Turkish Code of Obligation to be issued, it is stipulated that the working conditions allow the employee to access information about production secrets or customer information or the employer's work and that the evaluation of this information obtained due to the ease of the employment relationship is of a nature that will harm the employer.

If it is necessary to evaluate these conditions;

Possibility to Obtain Information on Production Secrets or Employer's Work

Production secrets and work-related information can be defined as facts that are known to a limited environment, that cannot be easily learned by others, and that the employer has a legitimate interest in keeping it hidden. The employee must have the opportunity to learn information about production secrets. In this respect, no non-competition agreement can be made with workers who have publicly known information.

Opportunity to Learn About the Customer Environment

The reasons justifying the prohibition of competition agreement if the employee has the information of the employer's customer environment are that the employee establishes a personal relationship with the customer environment, knows their demands and needs, their unique characteristics and is likely to use them in favor within a competing enterprise, so that the employer may cause a decrease in the customer environment.

It is crucial to state that in order for the condition that the employer has a justified interest in the conclusion of the non-competition agreement to be realized, the employee must have this information or be able to learn it.

As a matter of fact, as stated in Article 444 of the TBK, there should be a possibility that the employer may suffer a significant loss if the information in question is used. Although the existence of this possibility is determined according to the concrete event, the existence of the loss can be accepted in cases where it is not possible to compensate for the loss, creates a regression in the competitiveness in the relevant market, and there is a serious decrease in earnings.

Limitation of Non-Competition Commitment

In some cases, the prohibition of competition needs to be limited. In Article 445 of the TBK, the issue is dealt with by the legislator as follows:

"The prohibition of competition shall not contain such restrictions as are inappropriate in terms of place, time and type of work in such a way as to unfairly endanger the economic future of the worker, and its duration shall not exceed two years, except in special circumstances and circumstances.

The judge may limit the prohibition of excessive competition in terms of its scope or duration by freely assessing all the facts and circumstances and taking into fair consideration the counter-act which the employer may have undertaken."

Whereas it would be unlawful to deprive the worker of his freedom to work; Prohibition of competition agreements are restricted in terms of place, time and type of work in Article 445 of the TBK.

1. In Terms of Location

The imposition of a limitation on the pro-competition agreement in terms of place is a mandatory element. The boundary of the place in question can also be designated as a geographical region or a city. In these designated regions, the employer's economic interests are another element of necessity.

2. In terms of Type of Work

Another issue in Article 445 of the Turkish Code of Obligation is the limitation of works in terms of type. It is worth noting here is that the limitations are directly related to the task undertaken by the worker. The employer does not exceed his field of activity and the areas of work in which the employee cannot operate must be indicated.

3. In terms of duration

Article 445 of the TBK provides that the duration of the non-competition agreement shall not exceed two years, except in special cases and circumstances. The period starts on the date of termination of the employment contract. When deciding on the duration, a balance should be established between the economic future of the enterprise and the justified interests of the employer, and the prohibition of competition should be limited to a reasonable period of time.

4. Excessive Prohibition of Competition Regulations

The provision "The judge may limit the prohibition of excessive competition in terms of its scope or duration by freely assessing all the facts and circumstances and taking into fair consideration the counter-act which the employer may have undertaken." is included in the Article 445/2 of the TBK

With this provision, while limiting the prohibitions of competition of an excessive nature, the judge will have the discretion to determine, taking into account the particulars of the concrete case, whether the economic future of the worker in terms of the nature or duration of the work has unfairly endangered it.

Result

In order for the employee's non-competition obligation to continue after the termination of the employment contract, the employer must add a record of competition to the employment contract or also conclude a non-competition agreement with the employee.

The non-competition agreement must be made in writing. In order for this contract to be valid, the employer must have a justified interest worthy of protection and in this context, the employee must have one of the information obtained about the employer's production secrets, customer environment, sales and marketing conditions or the work done by the employer and if it is used, the employer must be harmed.

The employee who violates the prohibition of competition shall be obliged to compensate the employer for the damage and to pay it if the penalty condition has been agreed. If the employer suffers significant damage as a result of the breach and it is expressly agreed in writing in the contract, they may also request an end to the conduct contrary to the prohibition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Turkey: Prohibition Of Competition In Labor Law Contracts