Obligation of Non-Competition for Commercial Company Managers

One of the challenges faced by commercial companies is the transfer of managers to rival firms. This situation may indirectly result in the transfer of sensitive company data to a competitor. Even if that is not the case, the hiring company gains an undeniable advantage over its rival by acquiring the services of the manager. On the other hand, compelling an employee to work continuously for the same company is not feasible, as there is a prohibition of forced labor according to Article 18 of the Constitution. Thus, a balance needs to be struck between these two interests, and the “non-compete agreement” (or non-compete clause) (Turkish Commercial Code Articles 444-447) plays a crucial role in achieving this balance.

As indicated in decisions of the Supreme Court, a non-compete agreement is defined as contracts that prohibit an employee, after the termination of an employment contract, from engaging in competitive behavior within a specified geographical area and for a certain period due to the employee’s influence on the employer’s clients or knowledge of trade secrets.

The prohibition of competition may arise from the law or a contract. Provisions regarding the prohibition of competition in service contracts are generally related to the period following the termination of the relationship between the parties. However, if there is a desire to impose a non-compete obligation on the employee after the termination of the employment relationship, it usually needs to be explicitly stated in a separate contract, either as a provision of the employment contract or as a standalone agreement. There are some differences between making such an agreement while the employment relationship continues and making it after the relationship ends.

A contract containing a non-compete commitment requires the employee to refrain from engaging in certain activities against the employer for a specified period after the termination of the service contract, thereby undertaking a duty of non-performance. In other words, the non-compete agreement imposes certain restrictions on the economic freedom of the employee and their future economic activities.

Form of the Non-Compete Agreement

It is a requirement that the agreement regarding non-competition be in writing (Turkish Commercial Code Article 444). However, since the obligation in a non-compete agreement usually only concerns the employee, it is generally sufficient for the employee to sign the contract (Turkish Commercial Code Article 14/1).

Substantive Validity of the Non-Compete Agreement

In terms of substantive validity, there must be a justifiable interest on the part of the employer. This means that the employer must have a justifiable interest, such as the employee having access to production secrets, information about the employer’s business and clientele, and a significant risk of the employer suffering substantial harm. However, if the limitations of the agreement are not suitable concerning place, time, and type of work, the court has the authority to limit the relevant provision if it endangers the economic future of the employee in an unfair manner (Turkish Commercial Code Article 445/1).

Additionally, for the non-compete clause to be valid under Turkish Civil Code Article 444/2, it is required that the employee has the opportunity to access the customer base or production secrets of the previous employer and that the use of this information may cause significant harm to the employer. The determination of what constitutes “significant harm” for the plaintiff company is crucial, and the court has discretion in this regard. Moreover, it is not necessary for harm to materialize; the possibility of harm is sufficient.

In terms of suitable limitations concerning place, time, and type of work, Turkish Commercial Code Article 445/1 stipulates that the non-compete agreement cannot contain restrictions that endanger the economic future of the employee in an unfair manner and that the duration cannot exceed two years, except for special circumstances. Therefore, it is essential to clearly specify which of the employer’s activities the non-compete obligation applies to, as it is not possible to prohibit the employee from working in all areas. Also, regarding the duration, it cannot exceed two years. However, it has been observed that the Supreme Court tends to favor shorter durations for non-compete clauses in contracts that have broad scope in terms of subject and geography.