The requirements for a non-competition agreement to be deemed valid

Case ref: Court of Cassation, employment section, order no. 9790 of 26 May 2020

In the case in question, the Court closely examines the requirements to be met in order for a non-competition agreement to be considered legitimate under Article 2125 of the Italian Civil Code. To start with, the Court analyses the nature of the consideration for the non-competition clauses, which does not represent compensation but «constitutes the consideration for an obligation not to do». With regard to its function, the Judges point out that the purpose of a non-competition agreement is to safeguard the business «from the export of intangible assets of a business to a competitor, such as in its internal assets(technical and administrative organisation, working methods and processes, etc.) and external (goodwill, customers, etc.), since it is such assets that ensure its positioning in on the market and its success in relation to competing businesses».

Article 2125 of the Italian Civil Code aims to protect employees so that the provisions of the agreement «do not excessively limit the possibilities of being able to work elsewhere, subject to certain conditions, in return for an adequate consideration, on pain of nullity». The Judges remind us that the agreement does not necessarily have to be limited «to the specific tasks actually performed by the employee for the employer, but also having regard to the type of business of the employer, but at the same time must exclude activities unrelated to the specific sector in which the company operates». Indeed, the Court of Cassation goes on to say «the non-competition agreement, provided for by Article 2125 of the Italian Civil Code, which must not contain activities that are outwith the specific sector in which the company operates, may relate to any work activity that can compete with that of the employer (in order to protect the freedom of competition, which is, on the one hand, an expression of freedom of economic initiative and, on the other hand, pursues the protection of the collective interest, preventing excessive restrictions on competition) and must therefore not be limited to the tasks performed by the worker during the employment relationship, but will be null and void when its scope is such as to restrict the worker, imposing limits that jeopardise his or her earnings potential see Court of Cassation no. 13282 of 2003; Court of Cassation no. 25147 of 2017)». And so, the economic activities to be considered in competition with each other, for the purposes of Article 2125 of the Civil Code, must be identified «in relation to each market where there is a convergence of demand and supply of goods and services identical or equivalent in the same market». Finally, with reference to the adequacy of the consideration of the non-competition agreement, the Judges remind us that «the express provision of nullity, contained in art. 2125 of the Italian Civil Code, refers to the agreement of symbolic or manifestly unfair or disproportionate compensation in relation to the sacrifice required of the worker and the reduction of his earning potential, regardless of the benefit to the employer or hypothetical market value (see Court of Cassation no. 7835 of 2006)».

Given the above considerations, the Supreme Court upheld the ruling of the Lower Court, which had found to be valid the non-competition agreement entered into between a bank and an employee with “private banker” duties, since it covered the exact same area (Lazio), the same customers and the same kinds of products contained in the employment contract, was limited to three years post-employment and provided adequate compensation. It also contained a provision that a change in the corporate structure of the bank (incorporation of the bank into a large banking group) could not affect the validity of the non-compete clause. Related