Requirements For A Non-Competition Agreement To Be Considered Effective As Per The Turkish Code

Of Obligations

Atty. Oktay Özer

1.  Introduction: It is due to the obligation of loyalty that the employee does not compete with the employer during his/her employment contract. Provisions of the Art. 376/III of the Turkish Code of Obligations No. 6098 states "Employees may not serve a third person for a fee in violation of their obligation of loyalty, as long as their relation arising from the service continues, and especially they may not compete with his/her employer." Non-competition of the employee during the employment contract period is regulated. However, should the parties wish to continue such non-competition after the expiration of the employment contract, they may enter into a separate contract and conclude a non-competition.

 

It should be noted that if a non-competition agreement to be entered into between the parties becomes effective in the form of general terms, the said provision shall not be deemed written. In this context, the employer should expressly inform on the existence of the terms of non-competition agreement, and ensure that the content of such is known and accepted by the employee. The employer has the burden of proof.

 

2.  Non-Competition Agreement: A competition agreement to be entered into between the employee and the employer is regulated by certain terms of effectiveness as per the Turkish Code of Obligations. Art. 444/I of the Turkish Code of Obligations regulates non-competition agreements stating “An employee with a judicial capacity may undertake in writing to refrain from competing with the employer in any way, in particular by starting his own rival business, or otherwise working for another competitor or engaging in any other kind of interest relationship with such, after the expiration of his employment contract.” In order for non-competition agreement to be effective, the agreement must be in written form. As such, if the employee does not have the judicial capacity at the execution of the agreement, and any such agreement shall be null and void and such agreement may not be legalized by any legal representatives or approval thereby.

 

3.  Requirements for Non-Competition Agreement to be Effective: Art. 444/II of the Turkish Code of Obligations regulates the effectiveness of non-competition agreements stating “The obligation of non-competition is effective only in the cases where service relation provides the employee with the opportunity to obtain information about customers, professional secrets, or the employer’s business, and also, the use of such information may cause a significant harm to the employer.”

 

A.  Existence of Employer Interests to be Protected: The employment contract should be providing the employee with the opportunity to obtain information about customers, professional secrets, or the employer’s business. In this context, a non-competition agreement with an unskilled employee shall be null and void. Because an unskilled employee does not have such a potential.

 

There is no requirement that the employee must have the opportunity to obtain information about customers, professional secrets, or the employer’s business, during the employment contract. If the employee, due to his position, the nature of his job or his knowledge and skills, has the potential to obtain information about professional secrets, or the employer’s business, then the non-competition agreement is effective.

 

However, in the cases where the customers prefer such employee due to his qualifications, personality, skills and knowledge, non-competition agreement shall be null and void. For instance, customers arriving in a private hospital where a certain physician serves will result in a customer portfolio, due to his expertise, and therefore non-competition agreement shall be null and void.

 

B.  Jeopardizing the Employee’s Economical Future: A non-competition agreement between an employee and an employer should not jeopardize the economic future of the employee. As it is known, according to Article 48 of the Constitution, the employee has the freedom to work and enter into agreements in any areas. In this context, it is not possible to enter into an agreement that may prevent the exercise of such Constitutional right entirely. Article 12 of the Constitution states that no individuals have the freedom to waive their Constitutional rights.

 

In this context, a non-competition agreement is subject to certain restrictions.

 

4.   Restrictions concerning a non-competition agreement Art 445 of the Turkish Code of Obligations imposes some restrictions on non-competition agreements stating: Non-competition agreements may not impose restrictions as to place, time and type of work, in such a way that may jeopardize the economic future of the employee, and the duration of any such agreements may not exceed two years, save for special terms and conditions.

 

Courts may impose restrictions on redundant non-competition agreements as to the duration and scope thereof, freely evaluating all situations and conditions, and fairly considering the actions that the employer may have undertaken appropriately.

a.  Restrictions concerning the agreement period: According to our law, non-competition agreements of indefinite period are considered null and void. The major fundamental reason for such consideration is that non-competition agreements of indefinite period or of long-term period may jeopardize the economic future of the employee. For this purpose, a two-year agreement period is proposed. Such two-year period shall start on the expiration of the employment contract. As stated in the law, the two-year period is not an absolute period to be abided by. Under special terms and conditions, it is possible to enter into a non-competition agreement for a period longer than such two-year period.

 

b.  Restrictions concerning the location: Another restriction imposed by the law concerns the location. In this context, the location where an employee should not work should be specified in the agreement. Such location may not be referred to as “any location”. The location to be specified in the agreement is the location where employer actually conducts his business. In this context, a non-competition agreement imposing a restriction on working within the entire country, where a workplace operates only within Marmara region, shall be null and void. Because the employer's area of activity is only Marmara region.

 

One the Decisions by the Court of Cessation states: “Regulations do not recognize any non-competition agreements imposing restrictions within Turkey. However, it may be possible to impose country-wide restrictions through a non-competition agreement for an employee who is a foreign national, and the majority of whose working life is outside of Turkey. Also, restrictions imposed as to provincial boundaries or a particular region can be considered proper depending on the nature of the business.[1]

 

c.  Restrictions concerning the field of activity: Another restriction imposed by the law within the scope non-competition agreements, concerns the restriction as to the field of activity. Non-competition agreement should not be confined to the field of activity of the employer entirely but to the specific tasks carried out by the employee.

 

The Decision by the Court of Cessation states: “It should be clearly defined as to which activity/activities of the employer should be subject to non-competition agreement. It is not possible to impose restrictions on the employee not to work in all areas, especially in our country where the fields of activity of the companies are wide while registering in the trade registry. The restriction impose should only cover the work that is directly related to the work that is directly performed by the employee or the main field of activity of the employer.

 

The agreement which regulates the non-competition between the employee and employer shall remain effective even in the event of transfer of the workplace. In the events where the transferee changes the field of activity or the purpose, non-competition agreements shall terminate.”[2]

 

[1] Decision No. 2013/19695, Docket No. 2011/20759 on 26.6.2013, by 9th Civil Chamber of the Court of Cessation, www.kazancı.com.tr

[2] Decision No. 2013/5823, Docket No. 2013/2542 on 08.04.2013, by 7th Civil Chamber of the Court of Cessation, www.kazancı.com.tr