Many clients of our firm approach us with a request to draft employment agreements which include a non-competition clause of the employee after the end of the term of the agreement. The question is whether such employee non-compete clause is at all enforceable under the case law set by the Labor Courts stipulating that one need to protect the employee's right to freedom of occupation, realization of talents and maximizing the earning capacity, including through competition with the former employer.
The National Labor Court held in 1999 (the “Check Point” case) that the starting point is that a contract clause restricting the freedom of occupation of the employee will not be enforceable, unless the employer can show that the clause was set to protect a "legitimate interest" thereof. A "Legitimate interest" is, for example, trade secret, special training (But where an employee is not sent to an external training and all the training was done during the employee’s work, only rarely would the Court consider this as a special training that justifies limiting the freedom of occupation of the employee), special consideration, duties of good faith and trust. Next, the Labour Court will examine the reasonableness of the clause under the then current tests, such as the duration of the restriction, the scope, the geographical area it cover, etc. In the Checkpoint case a company's R&D manager quit and commenced working for a competitor, but the Court refused to uphold the non-compete clause.
Recently, the Regional Labor Court of Tel Aviv discussed a case where employment contracts included wide non-compete clauses for a period of one year after termination of the employee-employer relations. It was shown that all employees of the employer signed such non-competition clauses, including regular employees earning minimum wage. The Labor Court noted that the phenomenon in which employers formulate employment contracts to include wide non-compete and confidentiality clauses that are known to be unenforceable is a familiar phenomenon in Israel and abroad, and its main purpose is to create an element of deterrence. Nevertheless, the Court will not uphold such a wide clause.
It should be noted that the fact that a clause is wide may in cause its disqualification, while a reasonable clause may be imposed. What would be considered a wide clause and what will be deemed reasonable is a complex legal question depending on the circumstances of the case, just as other clauses of employment contracts and therefore it is advisable for employers to consult with an attorney familiar with the field for the purpose of drafting employment agreements and certainly where such include a non-compete clause, so that such meet the requirements of the law and case law. It is also important to emphasize that even if a lawyer who is familiar with the field drafted a form employment contract, it is important to consult with an attorney whenever signing a specific employment agreement, especially when it comes to employment contracts of senior employees.