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Constitutional Aspects of Prohibition of competition in Slovenian labour Law
The objective of this article is to emphasize the complexity of constitutional dimensions of the notion of prohibition of competition, primarily within the Slovenian labour legislation framework. The prohibition of competition encompasses significant restrictions, particularly affecting workers1), in terms of freedom to choose employment, engage in independent entrepreneurial activities, and even utilise their free time and rest periods. The author first presents and analyses the legislative provisions in place before Slovenia's independence, which were annulled as unconstitutional, and then outlines the key elements of the current labour legislation governing both dimensions of the competition prohibitionstatutory and contractual. Throughout, the author highlights solutions that the legislature implemented following guidance from the Constitutional Court, which played a pivotal role in shaping the now-applicable legal framework on the prohibition of competition.
Key words: Prohibition of Competition, Competition Clause, Freedom of Work, Freedom of Economic Initiative, Constitiutional Court
TIČAR, L.: Constitutional Aspects of Prohibition of competition in Slovenian labour Law. Právny obzor, 107, 2024, special issue, pp. 67-80.
https://doi.org/10.31577/pravnyobzor.specialissue.2024.05
Introduction
The employment Relationships Act (
Zakon o delovnih razmerjih
- ZDR-1; hereinafter referred to as: ERA-1),
2)
in effect since April 2013, extensively addresses the issue of the prohibition on competition between workers and employers in Chapter on the obligations of Contracting Parties, under the subsection detailing the obligations of the Worker, specifically Articles 39-42. The Act addresses this area under the heading of "Prohibition of Competition." It is a typical provision aimed primarily at safeguarding the interests of the employer, which underscores the fact that labour law does not always solely protect workers, even though the protection of their rights remains its primary aim and core purpose.
3)
An employer, whose primary objective is to achieve successful economic outcomes, has a vested interest in ensuring that their activities are not undermined by competition from their workers. Consequently, workers are restricted in their freedom of economic initiative and freedom of work, primarily in order to protect the employer's economic interests, both during the course of their employment and, potentially, after its termination. Workers are generally bound, without exception, by a non-compete obligation during the employment relationship. in this case, we are referring to a "statutory prohibition of competition" that is inherently tied to the very existence of the employment relationship itself. However, the non-compete obligation after the termination of employment is contractual in nature, meaning that it only applies to those workers who explicitly agree, via their employment contract, not to engage in activities that compete with the former employer's business for a specified period after the termination of their employment. Such a non-compete obligation is therefore often referred to as a "competition clause".
Labour legislation governs both forms of non-compete restrictions in different ways, but in all cases, it must take into account the position of the worker as well. This is achieved by permitting only a proportionate interference with the worker's rights and freedoms, which are typically guaranteed by the constitution. The fundamental aim and purpose of the legislator in regulating the non-compete provision within the ERA-1 is to ensure that only a proportionate restriction is imposed on the worker's position. in doing so, the legislator has drawn upon the reasoning found in the rulings of the Constitutional Court, which annulled the majority of the previous legislation governing this area (which was in force until 1 January 2003)
4)
as excessively restrictive.The constitutional and legal aspects of the non-compete regulation have already been mentioned. This will be the central focus of the article, but for a clearer understanding of the constitutional doctrine regarding prohibition of competition, we will first examine the purpose and characteristics of the current legal framework governing this institute. By doing so, we aim to provide a more comprehensive and nuanced understanding of the complexity of constitutional rights and the interference with them through prohibiting of competition.
The article will primarily address the issue within the context of Slovenian law, as the key source for the development of legislation and doctrine in the field of non-competition is the practice of the Constitutional Court of the Republic of Slovenia.
5)
In its work, the Court bases its decisions on human rights and freedoms as enshrined in the Constitution of the Republic of Slovenia (
Ustava Republike Slovenije
; hereinafter referred to as: Constitution),
6)
and in this context, it assesses the constitutionality of national labour legislation. Since the Constitutional Court developed the core of its jurisprudence and legal reasoning in its rulings concerning the constitutionality of the legislation in force prior to 2003 (ERA/90), we will draw upon the Court's reasoning in these decisions, which annulled the regulation under ERA/90, to demonstrate the constitutional conformity of the current legislation on non-compete obligation.It is evident that the legislator, in drafting the current ERA-1, fully adhered to the Constitutional Court's findings, thereby ensuring that the provisions of the current law are constitutionally sound. in analysing and presenting the Constitutional Court's decisions and reasoning, we will also gain insight into the previous, unconstitutional, and therefore annulled, legal regulation of prohibition of competition.
2. Statutory prohibition of competition
Statutory prohibition of competition, as part of the broader concept of the prohibition on competition, stipulates that the worker is forbidden from engaging in certain activities or entering into business transactions that fall within the scope of the employer's operations during a specified period, that is, during the term of the employment contract or employment relationship. This non-compete obligation reflects the subordinate position of the worker, who, by signing the employment contract, agrees to perform the tasks entrusted to them personally and under the employer's direction, while simultaneously respecting and safeguarding the employer's interests. Therefore, the prohibition of competition underscores the worker's loyalty to their employer.
The statutory prohibition of competition is referred to as the statutory, because it is typically the law itself that prohibits a worker, during the course of the employment relationship, from engaging in business activities that could compete with the employer's operations. Given that this prohibition is statutory, it applies to every worker in an employment relationship, irrespective of their personal consent or will. This means that the non-compete obligation is essentially a consequence of the subordinate position of the worker, which is one of the fundamental characteristics of the employment relationship, or perhaps its most defining element.
The statutory prohibition of competition, in the form we know it today, emerged in the early 1990s with the adoption of the employment Relationships Act of 1990 (ERA/90). This law marked the beginning of the establishment of the employment relationship as a classic bilateral relationship, similar to those found in countries with clear property rights and market economies. Prior to the enactment of ERA/90, labour legislation already contained the beginnings of a non-compete prohibition, the violation of which, before the new ERA/2002 came into force, resulted in a breach of employment duties and, consequently, disciplinary responsibility. Today, however, a worker who breaches the statutory non-compete obligation can be held liable for damages. lastly, a consequence of the worker 's breach may also be the termination of the employment contract by the employer.
Prohibition of competition is regulated in Article 39 of the ERA-1. During the course of the employment relationship, the worker is prohibited, without the written consent of the employer, from performing work or entering into business transactions, either for themselves or on behalf of others, that fall within the scope of the employer's business activities and that could constitute, or potentially constitute, competition for the employer. If the worker acts in violation of this prohibition, they are liable for damages in the event that harm is caused. The law also sets forth both a subjective (3-month) and an objective (3-year) time limit within which the employer may seek compensation for any damage incurred.
A breach of the statutory non-compete obligation occurs when three conditions are cumulatively met:
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the worker performs work or enters into business transactions for themselves or on behalf of others, without the written consent of the employer,
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the work or transactions fall within the scope of the employer's actual business activities,
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the work or transactions represent, or could potentially represent, competition for the employer.
Of the three conditions, th
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