Non-compete clause in the employment contract: what is lawful

The non-compete covenant (non-compete clause) is common in Swiss employment contracts, but it is never “unlimited”. Let’s look at what is really lawful.

When the clause is valid

Under the Code of Obligations, a non-compete covenant is valid only if:

• it is agreed in writing;
• the employee is of legal age;
• the employment gives access to client relationships or to manufacturing or business secrets;
• and the use of such knowledge could cause the employer significant harm.

If there is no access to client relationships or secrets, the clause has no effect: merely inserting it into the contract is not enough.

The three limits: time, place, scope

Even when it is valid, the clause must be limited:

• Time: as a rule no more than three years, save in special circumstances.
• Place: confined to the geographical area that is genuinely relevant.
• Scope: referring to the type of competing activity, not to “everything”.

A clause that is too broad can be reduced by the court to a fair measure.

When it lapses

The covenant ceases if the employer no longer has a real interest in maintaining it, or if the employment ends for a reason attributable to the employer (or without any reason attributable to the employee). In other words: an employer who terminates without any fault on the employee’s part often loses the protection.

Penalty and damages

The contract may provide for a penalty in the event of a breach. Unless otherwise agreed, an employee who pays the penalty is released from the covenant; the employer may, however, also claim damages for further loss or, if agreed, the cessation of the conduct.

Practical advice

For the employer: a calibrated and defensible clause is worth more than one that is as broad as it is ineffective. For the employee: read the limits and duration carefully before signing, and check the consequences in the event of resignation or dismissal.

How we help you

The People division, together with Tax & Legal, sets up employment contracts, policies and clauses that are coherent and defensible — and coordinates the legal specialists when needed. Let’s review your contracts.