Non-compete clauses: the remuneration threshold

Non-compete clauses appear in many employment contracts and in many of them they have no effect. The most common reason is not the drafting but the statutory remuneration threshold.

The remuneration threshold

A non-compete clause only binds if the monthly remuneration in the last month of the employment relationship exceeds a statutory threshold. This threshold is linked to the maximum contribution basis under the ASVG and therefore rises every year. Clauses agreed before 17 March 2006 are not subject to any remuneration threshold; for agreements concluded up to 28 December 2015, the threshold is seventeen times rather than twenty times the maximum contribution basis. Anyone who uses a contract template unchanged for years will, at some point, have let the clause become ineffective for part of the workforce, without noticing.

What must also apply

Even above the threshold, the clause is only valid if it is objectively limited to the employer's line of business, does not extend too far geographically, lasts no more than one year and does not unreasonably impede advancement. Where the employer gives notice without the employee being at fault, the employer generally cannot rely on the clause.

For contract drafting

It is advisable to check the clause annually against the current threshold and to set any contractual penalty at a realistic level. In clauses agreed since 29 December 2015, a contractual penalty is valid only up to six times the last net monthly salary and is additionally subject to the court's power to reduce it; a penalty equal to a year's salary exceeds that limit and is invalid to that extent.