A non-compete clause is one of the key issues in civil and commercial law, aimed at protecting the interests of businesses from the activities of their board members, shareholders, or employees who might use their positions to gain personal benefits, thereby acting to the detriment of the company.
According to Article 211 of the Polish Commercial Companies Code, members of the management board are prohibited, without the company’s consent, from engaging in competitive activities against the company they represent. This prohibition covers several key areas:
- engaging in competitive interests – a board members cannot conduct business activities that directly compete with the company’s operations.
- participating in other competing entities – board members cannot hold positions in competing companies, nor can they own shares in such companies.
- participating in a competing company – the prohibition extends to being a member of the management body of a competing company or owning shares exceeding 10% in that company.
The company’s articles of association may contain more stringent provisions regarding non-compete clauses, such as reducing the maximum allowed stake in a competing company to less than 10%. This allows companies to better protect themselves from competitive activities.
What is Competitive Activity?
The Commercial Companies Code does not explicitly define what constitutes competitive activity. In practice, to define competitive activities (“engaging in competitive interests“), the provisions of the Act on Competition and Consumer Protection are applied. Therefore, engaging in competitive interests can be understood as conducting business in one’s own name or working for another company (as an employee, agent, intermediary, consultant, etc.), which introduces or may introduce, or acquires or may acquire, the same goods or services on the relevant market at the same time as the company where the individual holds a management position. This market includes goods (services) that, due to their purpose, price, and characteristics, including quality, are considered substitutes by buyers and are offered in an area where, due to the type and properties of the goods, market entry barriers, consumer preferences, significant price differences, and transportation costs, there are similar competitive conditions.
Competitive activity can take various forms, including:
- running one’s own business independently,
- working for a competitor, e.g., employment in a company operating in the same industry,
- participating in competing companies, e.g., being a board member, proxy, or attorney in a competing firm.
Non-Compete Clause and Shareholder Consent
Shareholders of the company may, within the company’s articles of association, grant consent to board members to engage in competitive activities. This can be done by a resolution of the shareholders or a decision of the supervisory board, if it is the one that appoints the management board. It is important to emphasize that consent for competitive activity should be granted before a board member engages in such activities.
When granting consent for competitive activity, it is advisable to specify its scope, such as:
- which types of activities are permitted,
- whether the consent applies to specific clients or territories,
- the period for which consent is granted.
Consequences of Violating the Non-Compete Clause
If a board member violates the non-compete clause, the company may:
- dismiss them from their position,
- terminate the employment contract or other civil law agreement,
- impose liability for damages resulting from the violation.
According to Article 293 of the Commercial Companies Code, a person who violates the non-compete clause is liable to the company for damages caused by actions contrary to the company’s agreement or legal provisions.
Consent for competitive activity can be revoked at any time, providing additional protection for the company. However, in such cases, it is important to clearly define the conditions for the revocation of consent in the company’s articles of association.
Non-Compete Clause for Shareholders
A shareholder who has access to key information about the company’s operations may also pose a threat to the company if they decide to engage in competitive activities. Therefore, it is worth considering introducing a non-compete clause for shareholders as well.
The Commercial Companies Code does not introduce a general non-compete clause for shareholders, but the company’s articles of association may include provisions that limit or prohibit competitive activities by shareholders.