What is a non-compete clause in commercial law and why is it important

|Attorney|Czech Bar Association Reg. No. 14551

Published:2/3/2023Updated:9/13/2026

A non-compete clause in commercial relationships protects a business against a former partner using acquired contacts, information or know-how to compete after cooperation ends. The restriction must be proportionate and sufficiently specific as to activities, persons or territory and duration. The article explains the difference between general non-competes and commercial agency clauses and the effects of invalid drafting.

Key takeaways

Distinguish between two types of non-compete clauses. The law defines a specific non-compete clause for commercial representation with stricter rules, and a general clause for other contractual relationships with slightly different conditions.
Limit the clause in time and scope. A non-compete clause must clearly define the territory, the circle of persons, and the specific prohibited activities to be valid and enforceable.
Adhere to the maximum duration. A non-compete clause in a commercial representation agreement may not exceed 2 years, while a general non-compete clause is limited to a maximum of 5 years.
An invalid clause is unenforceable. If a non-compete clause does not meet the statutory requirements, it may be declared invalid, meaning that a court will disregard it and it cannot be enforced.

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How do non-compete clauses between businesses work?

Under Czech legislation, there are two types of non-compete clauses:

Non-compete clause in a commercial agency agreement: This type is specific to commercial agency agreements, where a commercial agent works as an independent entrepreneur for the principal (for example, a company) and undertakes to broker business deals. Stricter rules apply to this type of non-compete clause.
General non-compete clause: This applies to all other types of contractual relationships and has slightly different rules compared to the non-compete clause in a commercial agency agreement.

Rules for non-compete clauses

The territory or persons to whom the clause applies must be clearly defined.
The competitive activities that are prohibited must be specified.
The duration must not exceed 2 years for commercial agency agreements and 5 years for general non-compete clauses.
The clause must be balanced, meaning it must not disproportionately restrict one of the parties.

What happens if the rules are not followed?

If a non-compete clause does not meet all the legal conditions, it can be declared invalid. This means it will be disregarded and cannot be enforced in court. It is therefore important that a non-compete clause is carefully drafted and respects all legal requirements.

Frequently asked questions about defects in non-compete clauses

1. What if a non-compete clause does not specify the territory, the scope of activities or the group of persons?

In that case, the non-compete clause is disregarded, so it does not bind the other party at all (Section 2975(1) of the Civil Code). The clause must therefore expressly define where, in relation to whom or within what scope of activities competitive activity is prohibited.

2. What if a general non-compete clause is agreed for an indefinite period or for longer than 5 years?

The clause does not lapse; instead, it is deemed to have been agreed for 5 years. The law thus automatically shortens a longer or unlimited restriction to the maximum permissible period, without any need to go to court.

3. What can a party that is disproportionately restricted by the clause do?

It may petition the court to limit, cancel or declare the non-compete clause invalid if it restricts the party more than is necessary to protect the other party. In the case of a commercial agent, the court may limit a disproportionate clause.

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Conclusion

A non-compete clause is an important tool for protecting business interests, but it is necessary to ensure it is correctly formulated and complies with legal conditions. A properly drafted non-compete clause can prevent many problems and disputes that could arise after the termination of a contractual relationship.

If you are dealing with any matter concerning a non-compete clause, do not hesitate to contact us - our Prague-based legal team will be happy to help you.

Frequently asked questions about non-compete clauses between businesses

1. What is a non-compete clause in commercial relationships?

An arrangement under which a contracting party undertakes not to engage in activities of a competitive nature towards the other party, typically after the cooperation ends. The Civil Code regulates the general non-compete clause and, separately, the clause in a commercial agency agreement, which is subject to stricter limits.

2. For how long can a non-compete clause with a commercial agent be agreed?

For a maximum of two years from the termination of the commercial agency. A clause agreed for a longer period or without defining the territory or the group of persons in that territory is invalid (Section 2518(1) of the Civil Code).

3. What exactly can the clause prohibit a commercial agent from doing?

Carrying out, in a specified territory or towards a specified group of persons, on their own or another’s account, any activity that would be competitive in relation to the principal’s business. Typically, this is the activity the commercial agent has so far performed for the principal.

4. Does a non-compete clause affect the commercial agent’s special remuneration?

It may. When assessing whether the special remuneration after the end of the agency is fair, all circumstances are taken into account, including whether or not a non-compete clause was agreed (Section 2514(1) of the Civil Code). The clause may therefore affect the amount of the special remuneration.

5. Do the same rules apply to a non-compete clause with an employee?

No, employees are covered by the Labour Code. The clause may last no longer than 1 year after the end of employment, the employer pays monetary compensation of at least half of the average monthly earnings for each month, and it must be concluded in writing (Section 310 of the Labour Code).

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About the author

JUDr. Jakub Dohnal, Ph.D., LL.M.

Associate, managing partner

LinkedIn|Czech Bar Association Reg. No. 14551

Jakub Dohnal is an attorney-at-law and managing partner of ARROWS. He focuses on company sales, investor entries into private companies and real estate transactions — most often acting for the owner who is selling a business built over many years and needs the deal to close on the agreed terms.

dohnal@arws.cz +420 245 007 742

Disclaimer:

The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 350,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (consultation@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.