Legal News [February 2024]: When can employer withdraw from non-competition clause?

The Supreme Court brought two groundbreaking judgments in the field of labour law, in the first judgment the Supreme Court clarified the matter of an employer’s withdrawal from a non-competition clause, which, according to the Supreme Court, is possible on the basis of a contractual arrangement without stating a reason. In the second judgment, the Supreme Court then dealt with the matter whether an unlawfully dismissed employee is entitled to paid leave, established during the period of unlawful dismissal, and the Supreme Court concluded that the employee is entitled in full. Other judgments we have prepared for you in this Legal News deal with the matters such as the proper concurrence of functions or the lease of an apartment to third parties for Airbnb purposes.

  • The Grand Panel of the Supreme Court, in its judgment ref. no. 31 Cdo 2955/2023, deals with the still highly controversial and unclear matter of the employer’s withdrawal from a non-competition clause. In accordance with the Constitutional Court ruling of 21 May 2021, file ref. II. ÚS 1889/19, the Grand Panel concluded that, in view of the nature of the non-competition clause (which serves primarily to protect the employer’s rights and interests), the employer may withdraw from the non-competition clause during the term of the employee’s employment even on the basis of a contractual arrangement according to which the employer is entitled to withdraw from the non-competition clause during that period without giving any reason or for any reason whatsoever, or on the basis of an otherwise similarly agreed withdrawal option. The only remedy, which is intended to protect the legitimate interests of the employee, is that the employer may not act arbitrarily or abuse the contractually agreed withdrawal option.
  • Further, the Supreme Court, in its judgment ref. no. 21 Cdo 2124/2021, dealt with the matter (as yet unresolved in its case-law) of whether an employee with whom the employer has terminated the employment relationship and who has notified the employer in writing that they insist on continuing to employ them is entitled to paid leave for the period during which a legal dispute concerning the invalidity of the termination of the employment relationship, which has been finally terminated by a decision on the determination of the annulment of the termination, was pending. In that connection, the Supreme Court referred the question for a preliminary ruling to the Court of Justice of the European Union, which answered it in judgment Case C-57/22. Following that judgment, the Supreme Court then held that the employee who has been unlawfully dismissed and reinstated is entitled to claim all the annual leave entitlements which were established between the date of that unlawful dismissal and the date on which the employee was reinstated as a result of that annulment. The only exception is any period during which that employee worked for another employer.
  • The Supreme Court dealt with the conditions under which a claim for compensation for damage caused asserted by an employer against an employee can be assessed under the provisions of the Civil Code on unjust enrichment and the relationship between unjust enrichment and the obligation to compensate for damage caused in its most recent judgment, ref. no. 21 Cdo 1609/2023. It concluded that material harm that can be expressed in money is a prerequisite for both the employer’s claim for unjust enrichment and its claim for liability for damage caused. It then depends on whether the material harm was caused by the employee’s culpable breach of an obligation in the performance of their working tasks or in direct connection with it. If so, the claim must be assessed under the provisions on compensation for damage caused pursuant to the Labour Code. If these conditions are not met, the employer’s material harm may – in view of the subsidiarity of unjust enrichment in relation to compensation for damage caused – be assessed under the provisions on unjust enrichment.
  • In a recent judgment ref. no. 26 Cdo 2128/2023, the Supreme Court dealt with the matter (as yet unresolved) of whether a tenant’s provision (sublease) of an apartment to third parties via platforms such as Airbnb for short-term accommodation represents its use in conflict with the purpose of the lease of the apartment and is a gross breach of the tenant’s obligation under the lease pursuant to Section 2288(1)(a) of the Civil Code. The Supreme Court concluded that, in the case of such short-term leases, the tenant uses the apartment for a purpose other than residency, thereby violating their obligations as the tenant of the apartment. If this breach reaches such an intensity that it can be assessed as gross (e.g. in view of its extent, negative effects on other residents in the building, etc.), a landlord may terminate the lease of the apartment. This conclusion also applies, under certain conditions, if a subtenant has provided (subleased) the apartment to third parties for purposes other than residency.
  • In its judgment of last autumn, ref. no. 33 Cdo 347/2023, the Supreme Court dealt with the matter, which has not been resolved in the case-law so far, whether an entrepreneur providing a public communications network or a publicly available electronic communications service is obliged (entitled) to store services provided and process data on incoming calls for billing purposes (pursuant to Section 90 of Act No. 127/2005 Coll., on Electronic Communications), in the context of the protection of personal data. The Supreme Court stated that the court of appeal – correctly – agreed with the opinion of the Office for Personal Data Protection of 31 August 2022. According to that opinion, data on incoming calls constitute personal data “by means of which a natural person … can be easily identified … it is almost always possible to link a telephone number with a number of other data about the natural person”. Pursuant to Act No. 110/2019 Coll. on the Processing of Personal Data, the operator is entitled (for a limited period of time) to process and store such personal data to the extent necessary for the provision of services and for the purposes of billing and payments for the connection, even if it relates to a person other than the complainant. This conclusion is also in accordance with EU legislation (Article 6(1)(c), f)) of the General Data Protection Regulation, Article 6 of the Directive on Privacy and Electronic Communications).
  • In its recent ruling, file ref. III ÚS 410/23, the Constitutional Court again dealt with the matter of the “proper concurrence of functions”. In particular, it assessed the situation in which a member of a statutory body enters into not only an agreement on the performance of the function of a member of the statutory body but also a “management agreement” with a business corporation. The Constitutional Court upheld its earlier conclusion that the “management agreement” entered into with a member of the statutory body of a business corporation may be contractually subject to the Labour Code regime (without being dependent work or an employment relationship). However, such subordination is possible only with limits arising from mandatory (non-transgressive) norms of business and civil law. According to the Constitutional Court, these limitations fully respect the principle that agreements are to be respected, as well as the autonomy of the will of contractual parties. The Constitutional Court stated that the requirement that the contractual provision on the fee of a member of the statutory body (even if it is contained in the management agreement, not in the agreement on the performance of the function) be approved by the highest body of a company (the General Meeting) does not violate constitutionally guaranteed rights. The reason for this is, inter alia, to protect the rights and legitimate interests of shareholders, third parties, and a joint stock company itself. The absence of such approval renders the relevant agreement ineffective. This has an impact on the legitimacy/justification of the payment of the fee or other benefits under such an agreement.
  • We also present a summary of an earlier Supreme Court judgment, ref. no. 27 Cdo 452/2023, in which the Supreme Court dealt with the matter of material standing in the proceedings on the declaration of invalidity of a resolution of the General Meeting of a limited liability company. The Supreme Court concluded that in connection with the regulation of the declaration of invalidity of the resolution of the General Meeting, the concept of a “member” as a person with material standing to file a petition pursuant to Section 191(1) of the Civil Code must be interpreted extensively. Therefore, a person who, after the adoption of the resolution of the General Meeting, lost the status of a member without a legal successor, but whose rights and obligations based on their relationship to the company are still affected by the contested resolution of the General Meeting, is to be considered a member. However, in a situation where the contested resolution of the General Meeting decided to dismiss the current statutory executive and appoint new statutory executives of the company, there is no preservation of material standing (despite the above-stated extensive interpretation of the concept of a member). Such a decision could not in itself in any manner whatsoever affect the rights and obligations of the former member established by their previous participation in the company.
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