Non-compete clause in Serbia: What employers and employees should know

Non-compete clause in Serbia is broadly used institute in employment contracts in Serbia, aiming to protect employer position in certain circumstances. This clause is prescribed in Serbian Employment Act, and there are strict conditions upon which such clause can be enforceable.

Also, there are some important practical insights with respect to the non-compete clause, which should be taken into consideration when drafting employment agreement.

Legal framework: How Serbian law regulates non-compete clause

In Serbia, non-compete clause is defined by Serbian Employment Act, which prescribes strict conditions, i.e. elements which should be part of this clause.

Key legal requirements for validity

There are several conditions to be fulfilled when it comes to the validity of a non-compete clause:

• Non-compete clause should be part of employment contract: this clause is not obligatory part of employment agreement, so in case employer wishes to include it, it needs to be specifically written in the agreement;
• It should state the activities that an employee may not be engaged in on his own behalf and for his own account, as well as on behalf and for the account of another legal or natural person;
• It can be part of employment contract only for those employees who may acquire, by working with the employer, new, particularly important technology know-how, a wide circle of business partners, or learn significant business information and secrets;
• Territorial validity should be defined;
• Employer’s right to claim damages in case employee breaches the non-compete clause.

Two types of non-compete clause

There are two types of a non-compete clause in Serbia:

• during employment relationship;
• after termination of employment.

In order for a non-compete clause to be valid after termination of employment, Law stipulates for an additional requirement, which is commonly not applied by employers in practice.

Namely, in order for non-compete clause to be valid even after termination of employment, it is necessary that employer undertakes the obligation in the employment contract to pay to the employee pecuniary compensation in the agreed amount. This amount should be paid for the whole duration of validity of non-compete clause.

Although Law does not stipulate any range related to this amount, validity of duration of a non-compete clause is limited to two years.

When and why employers use non-compete clause

Even though non-compete clause is commonly used in practice and incorporated in employment contracts, it is necessary to emphasize that this clause can be used for employees employed at specific work places. This means that employees on such positions can acquire new, particularly important technology know-how (IP protection in Serbia).

Besides, employees working on a position that can enable them to learn significant business information and secrets can also be obliged to sign employment contract with non-compete clause.

Although non-compete clause provides a protection for employer, in order to protect sensitive business information, employers should consider also concluding a non-disclosure agreement (NDA) in Serbia, in order to cover all important aspects.

The main aim of non-compete clause is protecting employer’s business and position from a potential situation where employee may use knowledge gained during employment and then use it/disclose it to the competition. How important is this institute testifies that it is even strictly regulated by Serbian Employment Act.

Most common business sectors in which a non-compete clause in Serbia is used are mostly IT sector, marketing agencies, real estate sector, big manufacturing companies. However, this clause has a wide practical use and every employer should consider implementing it in employment agreements.

Duration and scope of the non-compete clause

Even though there are strict conditions prescribed in relation to this clause, it can be modified to meet requirements for concrete employment relationship.

Maximum duration under Serbian law

As noted, there are two different types of non-compete clause, so duration of this clause can be limited for the duration of employment relationship, or it may be extended after termination of employment up to two years.

Prescribed period of two years after termination of employment cannot be extended.

Defining the scope of restricted activities

It is very important to define strictly and precisely the scope of restricted activities in non-compete clause. Clause that is too widely drafted in terms of restricted activities for employee will not be valid, according to the case law, so it is important to limit restricted activities and define what exact activities employee cannot perform during a non-compete clause period.

Employer’s obligation to pay compensation

For the duration of employment relationship employer is not obliged to pay any separate compensation to the employee regarding a non-compete clause. However, this obligation exists in case that it is stipulated that non-compete clause will be valid even after termination of employment.

In this case, it is necessary that such clause contains obligation of employer to pay certain amount to the employee for the period of duration of a non-compete clause. The law does not stipulate neither the amount of such compensation nor whether it should be paid monthly or as one-time payment.

Therefore, it is up to the agreement between employer and employee how this compensation is to be paid.

Enforceability and Validity of Non-Compete Clauses in Serbia

In order for the clause to be valid it is important that it contains all obligatory elements we listed in this text and that it is drafted by legal specialist or employment lawyer for Serbia. In this way, non-compete clause will actually provide employer a protection, rather than just existing in contract without any legal force.

When courts consider a non-compete clause invalid

In case non-compete clause does not contain all elements, the court will declare it invalid and in that case such clause will not provide any protection for the employer. Also, even if clause contains all elements, there are still cases when it can be determined invalid according to the case law.

Those are the cases when the territory of the clause is determined too widely – for example, worldwide. Also, in case that employer prescribed too long period of duration of non-compete clause after employment termination, it will also be considered invalid for that period of time.

One common example in practice when clause is invalid, i.e. it is not obligatory for the employee is when employer is not paying compensation to the employee. Therefore, it is not enough to just state such obligation in the agreement, since in that case clause will not provide any protection for the employer.

Legal consequences and penalties for breach

In case of breach of non-compete clause by the employee, employer is entitled to the compensation of damages in Serbia. In this case, employer should initiate legal proceedings against employee, proving the act of breach and suffered damages. In this case it is extremely important that the clause is drafted in appropriate manner, so that employer can actually be entitled to protect the business and recover damages.

Employee rights and employer responsibilities

Non-compete clause does not protect only employer’s rights, but also provides certain rights for the employee. Namely, employees should also pay attention to this clause when signing the employment agreement so that they can be familiar with what kind of obligations are they undertaking.

Therefore, employees are entitled:

• negotiate with employer regarding the scope, duration of the clause and amount of compensation;
• to receive compensation for the period of validity of the clause after termination of employment;
• dispute clause if they consider it is not valid.

How Serbia’s approach compares to the EU

Legal requirements related to the non-compete clause in Serbia do not differ significantly from those in EU countries. Non-compete clause in EU considers following principles:

• Non-compete clauses are allowed but limited in duration, geographic scope, and subject matter;
• They must protect a legitimate business interest of the employer, such as confidential information, client relationships, or trade secrets;
• The restriction must be reasonable and proportionate, ensuring that it does not excessively limit the employee’s right to work;
• In most jurisdictions, the clause is valid only if the employee receives compensation during the restriction period;
• The clause should be clearly defined in writing, specifying its duration, scope, and compensation.

FAQ about Non-Compete Clauses in Serbia

Conclusion on balancing business interests and employee freedom

Even though main purpose of a non-compete clause is to protect business interests of employer, it is important that such clause does not limit and restrict significantly employee’s rights and freedom. Although the non-compete clause serves as an important mechanism for protecting the employer’s business interests, it must be carefully drafted to ensure a fair balance between the employer’s rights and the employee’s obligations.

In practice, employers often overlook the importance of this clause, which can lead to it being invalid or unenforceable.

To avoid such risks, it is highly recommended to seek professional legal assistance. A well-prepared non-compete clause not only provides legal certainty but also prevents potential disputes with employees, ensuring full compliance with the applicable employment regulations.

Our team can assist in structuring and reviewing non-compete provisions to ensure their validity and effectiveness in practice.

This article is for informational purposes only and does not constitute legal advice. If you need additional information regarding the topic in question, please feel free to contact us by email at office@ncrlawyers.com or by phone at +381677049551.