What is a competition clause in commercial relations and why is it important
In the business world we often come across the term "competition clause". This is an agreement between two parties (for example, between an employer and an employee, or between two businessmen) where one party agrees not to compete with the other for a certain period of time after the cooperation has ended. This clause is particularly important because it protects the commercial interests of one party from competition from the other.
Author of the article: ARROWS (Mgr. Jan Medek, office@arws.cz, +420 245 007 740)
Author of the article: Mgr. Jan Medek, ARROWS (office@arws.cz, +420 245 007 740)
How do competition clauses between businesses work?
Business-to-business competition clauses can appear in various contractual relationships and have their own specific rules and limitations, which are established by law.
The law distinguishes between two types of competition clauses:
- Competition clause in commercial agency: This type is specific to commercial agency contracts where the agent works as an independent businessman for the represented party (for example, a company) and undertakes to broker business. Stricter rules apply to this competitive clause.
- General competition clause: This applies to all other types of contractual relationships and has slightly different rules to the competition clause in a commercial agency.
Rules for competition clauses
- It must be clearly identified to which territory or persons the clause applies.
- It must be specified what competitive activities are prohibited.
- The duration must not exceed 2 years for commercial agency and 5 years for general competition clauses.
- The clause must be balanced, i.e. it must not unduly restrict one of the parties.
What happens if the rules are not followed?
If a non-compete clause does not meet all the legal requirements, it may be declared invalid. This means that it will be disregarded and cannot be enforced in court. It is therefore important that the competition clause is carefully worded and respects all legal requirements.
Conclusion
A competition clause is an important tool for protecting commercial interests, but care must be taken to ensure that it is properly drafted and that the statutory requirements are complied with. A properly drafted competition clause can prevent many problems and disputes that could arise after the end of the contractual relationship.
If you are also dealing with any issue related to a competition clause, do not hesitate to contact us - we will be happy to help you.
Bc. Kryštof Pažourek.