Legal Updates

Absent a legitimate interest employees’ freedom of occupation cannot be limited by a non-compete clauses

October 14, 2020

Several employees in a consulting company, resigned and established a competing business. At the same time, several clients chose to transfer their business to the competing business in contradiction to the non-compete clauses in the employment agreements.
The Labor Court held that there is no legitimate interest justifying limitations on the employee’s freedom of occupation and therefore they cannot be prevented from continuing to provide services to the clients that transferred their business to them. Generally, non-compete clauses are deemed less binding, unless where such clauses are reasonable and come to actively protect the interests of both parties. In the absence of a legitimate interest to limit an employee’s ability to use his skills under a different employer, thus encouraging free market competition, self-fulfillment and improvement, the principle of freedom of occupation shall prevail. A legitimate interest may be the employer’s desire to prevent the employee from making use of a trade secret, where the employer made significant investments in employees training in exchange for employee committing to the employer for a specific term, in the event that the employee received special compensation for the commitment not to compete, or if the employee breached fiduciary duties. Even if a legitimate interest is identified, it must be balanced against the entirety of the circumstances. Here, the employees did not make use of any trade secrets, did not they breach their fiduciary duty because they did not actively solicit the clients, the salary did not include a specific consideration for the non-compete obligation, the employer did not invest special resources in developing the specialty of the employee and their expertise and experience accumulated over the years and their expertise, as well as their personal relations with the clients, brought the clients to make the transfer to the competing business. Because the clients left of their own volition, the employees cannot be prevented from continuing to provide those clients with services.