The non-compete clause is stipulated by the Company Law. The Company Law prohibits employees from performing certain, legally prescribed functions in another company that is considered competition, without obtaining consent. This prohibition applies to the so-called – persons with special duties towards the company.
Who is a person with special duties towards the company?
Special duties towards the company in limited liability company have:
1. Members of a limited liability company that have a significant stake in the company’s share capital (with more than 25% of the voting right in a company) or a member of a limited liability company that is a member of the controlling company;
2. Directors, members of the Supervisory Board, representatives and procurators;
3. Liquidation manager.
Under the Founding Act of the LLC, other persons may also be designated as persons with special duties towards the company.
Thus, if you are a person with special duties towards a company, without any prior consent, you cannot:
– Serve in the capacity of a person with special duties in a competing company,
– Work as an entrepreneur, with the same or similar activity,
– Be employed in a competitive company,
– Be engaged in any other capacity in a competing company,
– Be a member or a founder of a competing company.
The reason behind the non-compete clause is that if certain persons in a company (with special duties towards the company) would perform certain functions or have a certain status in a competing company, that would be considered contrary to the principle of the freedom of competition.
So, if you would like to be a member of a different company that has over 25% stake, you would need to obtain the consent from the company in which you first acquired the status of a member of the company. The same practice applies if you wanted to start a business as an entrepreneur or if you wanted to be a director, member of the Supervisory Board, representative or a procurator.