The Non-Compete Clause in Swiss Law
The non-compete clause is a contractual stipulation by which an employee undertakes not to engage in any activity competing with that of their employer after the end of the employment relationship. In Swiss law, this clause is governed by articles 340 to 340c of the Code of Obligations (CO). Its validity is subject to strict conditions and its scope may be limited or reduced by the court. PBM Avocats analyses and defends these clauses in Geneva and Lausanne.
Conditions for Validity of the Non-Compete Clause (art. 340 CO)
To be valid, the non-compete clause must satisfy three cumulative conditions:
- Civil capacity of the employee: the employee must be of legal age and capable of making commitments
- Access to sensitive information: the employee must have knowledge of the employer's clientele, manufacturing secrets or trade secrets
- Potential for significant harm: the use of this information in a competing activity must be capable of causing significant harm to the employer
If one of these conditions is absent, the clause is null and void by operation of law. A sales representative without access to trade secrets, or a production worker without knowledge of the clientele, cannot validly be subjected to a non-compete clause.
Legal Limits of the Non-Compete Clause (art. 340a CO)
| Criterion | Legal Limit | Sanction in Case of Excess |
|---|---|---|
| Duration | Maximum 3 years | Reduction by the court to a reasonable duration |
| Territory | Must correspond to the employer's actual area of influence | Territorial reduction by the court |
| Activities | Limited to actually competing activity | Reduction to the effectively competing activity |
| Legitimate interests | Must correspond to a legitimate interest of the employer | Reduction or nullity if purely vexatious |
Cases of Lapse of the Non-Compete Clause (art. 340c CO)
The non-compete clause lapses (becomes without effect) in two important situations:
- Dismissal without just cause by the employer: if the employer terminates the contract without the employee having given just cause (ordinary or wrongful dismissal), the clause lapses
- Termination by the employee for just cause attributable to the employer: if the employee terminates for a serious cause caused by the employer (serious breach of the employer's obligations, harassment, non-payment of salary), the clause also lapses
Lapse is an important defence for the employee who wishes to engage in a competing activity after unjustified dismissal.
The Contractual Penalty and the Action for Cessation
The non-compete clause is generally accompanied by a contractual penalty that the employee must pay in the event of violation. Characteristics:
- Lump sum agreed in advance (generally 2-6 months' salary)
- Simplifies proof of damage for the employer
- The court may reduce a manifestly excessive contractual penalty (art. 163 para. 3 CO)
- The contractual penalty does not exclude an action for cessation (injunction to cease the competing activity), which may be obtained as urgent provisional measures
- In the event of serious violation, the employer may claim additional damages if the actual damage exceeds the contractual penalty
Non-Compete Clauses in Commercial Contracts
Non-compete clauses are not limited to employment contracts. They are frequently found in:
- Franchise agreements: prohibiting the franchisee from operating a competing concept during and after the contract
- Distribution agreements: limiting competition between the distributor and other products of the supplier
- Business sale agreements: the seller undertakes not to restart a competing activity
- Partnership agreements: between partners or shareholders of a joint venture
In commercial contracts, non-compete clauses are subject to the general rules of the CO on freedom of contract and, where applicable, competition law (CartA) if they have an impact on competition.
Frequently Asked Questions About Non-Compete Clauses in Switzerland
Can an employer always impose a non-compete clause?
No. According to art. 340 para. 2 CO, the non-compete clause is only valid if the employee has knowledge of the clientele, manufacturing or trade secrets, and if the use of this knowledge could cause significant harm to the employer. A non-compete clause imposed on an employee without access to sensitive information is null and void.
What is the maximum duration of a non-compete clause?
Art. 340a CO provides that the non-compete clause may not exceed 3 years if, having regard to all circumstances, the legitimate interests of the employer so require. In practice, courts often reduce excessive clauses to a reasonable duration (6 months to 2 years depending on the sector and circumstances). Beyond 3 years, the clause is automatically null and void.
Is the employee compensated for complying with a non-compete clause?
The CO does not provide for a legal obligation to compensate the employee for complying with a non-compete clause. However, the absence of compensation may be taken into account by the court when assessing whether the clause is equitable or to reduce it. In other countries (Germany, France), financial consideration is mandatory; in Switzerland, it is recommended but not imposed.
When does the non-compete clause cease to apply?
According to art. 340c CO, the non-compete clause lapses if the employer terminates the contract without the employee having given just cause, or if the employee terminates for just cause attributable to the employer. It is therefore inapplicable if the employer is the cause of the termination or if their conduct made the termination inevitable.
What is the contractual penalty for violation of the non-compete clause?
The contractual penalty is a lump sum that the employee undertakes to pay in the event of violation. It simplifies proof of damage for the employer. The judge may reduce the contractual penalty if it is manifestly excessive (art. 163 para. 3 CO). The contractual penalty does not replace the action for cessation: the employer may simultaneously obtain the penalty and a judicial injunction to cease the competing activity.