Our employment experts consider the importance of restrictive covenants in Spain.
What are the key types of restrictive covenants in your jurisdiction?
Article 21 of the Workers' Statute regulates: i) Unfair competition, ii) Full dedication agreement (exclusivity) to be observed during the term of the employment contract and iii) Post-contractual non-competition.
- Unfair competition occurs when the employee performs work for different employers without the knowledge and consent of his employer, in the same sector or activity and with repetition over time that is likely to cause damage.
- Full dedication or exclusivity is agreed and applied while the employment relationship is in force, it must be expressly agreed as, in Spain, multi-employment is allowed, hence, if a company wants the employee to provide services only for itself, and not to work, be a partner or provide (commercial) services for another company, regardless of whether or not it is in the same sector, it must expressly agree in the contract that exclusivity.
- On the other hand, there is post-contractual non-competition. In this case, in order for the company to be able to agree it and for it to be fully valid, it must have an effective industrial or commercial interest in it.
Likewise, although this is not a restriction in the strict sense of the term, the permanence in the company is also regulated when the company has paid for training or specialisation in order to undertake certain projects, for a maximum period of two years.
Does the employer have to pay compensation to the employee in relation to the restrictive covenants?
If a restrictive covenant is agreed, in order for it to be valid it must have an "adequate" financial compensation, without specifying the manner in which it is to be compensated, which may be either through the payment of a percentage or a specific amount on a monthly basis.
In the case of compensation for exclusivity, it must be paid while the employment relationship is still in force, and it is considered appropriate to pay a percentage that, depending on the agreed salary, is at least 20-25% of its amount.
In the case of post-contractual non-competition, a percentage of the salary can also be paid on a monthly pro rata basis during the term of the employment relationship (around 35-50% of the salary depending on the amount), or it can be stipulated that a certain amount (at least 50% of the salary) is paid after the redundancy or termination of the employment relationship.
Are there limits to the post-employment restriction period and to the geographical area of the restrictive covenants?
For restrictive covenants to be enforceable in accordance with the Spanish Workers' Statute, as well as with the constitutional principle recognising the right to work as one of the fundamental rights, there is a time limit of 2 years maximum for technical employees and 6 months for other workers. In terms of geographical limits, nothing is specified in the regulations, although, based on the restrictive criterion of industrial and commercial interest, it would be logical to consider that the geographical limit will be restricted to the area of business activity of the company or group in the case of a multinational.
Can the employer unilaterally revoke the agreed restrictive covenant at the end of the contract or otherwise avoid its application?
The company can revoke the full dedication of the agreement, although it can be considered as a substantial modification of the conditions of the employment contract, but it cannot unilaterally revoke the post-contractual non-competition agreement, as it is a clause that cannot be left to the discretion of one of the parties, and therefore, except in some very specific cases, any clause that allows the company to decide whether or not to demand non-competition and compensation when terminating the employment relationship will be null and void.
What remedies are available to the employer when an employee breaches their restrictions?
It is important for employees to be mindful of their restrictive covenants. In case of a breach of exclusivity, the company may impose disciplinary sanctions on the employee (including dismissal), as well as claim compensation for damages caused.
In case of breach of the post-contractual non-competition, the employer may claim the amounts received for this concept, and in some cases, an additional amount may also be claimed as compensation for damages before the social jurisdiction.
In the event of breach of the permanence pact, the company will be entitled to claim from the worker the amount invested in his or her training in proportion to the time of permanence not fulfilled.
