What is a non-competition clause?

By signing a non-competition clause, after the end of his employment contract an employee agrees to forgo operating a personal business with activities similar to those of his former employer, thus competing directly with him.

Can an employer prohibit an employee from being poached by a competitor?

The non-competition clause is often misunderstood by employers. They use it not to protect themselves from a former employee who has become an entrepreneur, but to prevent him from being recruited by another employer in the same sector of activity.

The non-competition clause in an employment contract is the one by which the employee undertakes, for the time following his departure from the company, not to engage in activities similar to those of his employer in order not to harm his interests by operating a personal business.

The non-competition clause does not apply to salaried activities that the former employee carries out for a new employer.

In recent years, however, case law has evolved: a decision dated 13 November 2014 by the Court of Appeal (N°39706) held that a non-competition clause providing for an obligation for an employee not to enter the service of a competing company or to apply for a job there for a limited period of time, would not be unfair, if payment is made via an agreement with the employee.

Similarly in a judgment dated 7 January 2016 (N°41659 of the case list), an employee had undertaken not to engage in competitive activity for a period of twenty-four months after the end of his employment contract. In return, Company A had undertaken to pay him a monthly indemnity corresponding to 50% of his last gross monthly salary.

In response to the request for payment of the indemnity due in consideration of the non-competition clause provided for in the employee’s employment contract, the employer invoked the nullity of the non-competition clause itself on the grounds that the law provides for a maximum duration of 12 months starting on the day the employment contract ended.

The judges ruled that only the employee is entitled to invoke the nullity of the non-competition clause. The employer cannot therefore invoke it. However, the employer is entitled to waive the clause, but this waiver has no retroactive effect, which obliges the employer to pay the indemnity to the employee for the period prior to his waiver, if any.

Can a non-competition clause result from a verbal agreement between the employer and the employee?

No, a non-competition clause is only valid if it is stated in writing in the employment contract. Any oral clause is therefore null and void and cannot be enforced.

Under what conditions is a non-competition clause valid?

A non-competition clause, even a written one, can only apply to an employee when several conditions are met:

  • Firstly, it cannot apply to an employee whose gross annual remuneration is less than €64 382,45 (index, 944.43 effective from 1st of January 2024).
  • Secondly, it must be geographically limited, i.e. it may in any case never extend beyond the territory of Luxembourg, but it must be limited to localities where the employee can be in real competition with his former employer.
  • Thirdly, the non-competition clause must be limited in time, running for a maximum period of 12 months from the end of the employment contract.
  • Finally, the non-competition clause may only relate to activities that are identical or similar to those carried out by the employer.

(Last updated on 11.09.2023)

Can a non-competition clause be added to an employment contract during its term?

If an employer wishes to add a non-competition clause to the initial contract during the performance of the employment contract by means of an amendment, he may do so in accordance with the procedure for essential changes to the conditions of employment.

According to this procedure, the addition must be announced to the employee with a period of notice that depends on that person’s length of service.

At the employee’s request, the employer is also obliged to provide detailed reasons for the addition.

The reason for this formal procedure is that the addition of a non-competition clause is considered to unfavourably change the employee’s situation after the end of the employment contract.