Thanks to Arianna Daveri for collaborating on this article
Post-contractual non-compete covenants are valuable tools for companies seeking to protect their know-how—the wealth of skills and knowledge accumulated over the years that is often crucial for market success. While employees are legally bound by a duty not to compete during their employment (Article 2105 of the Italian Civil Code), employers wishing to restrict an employee’s ability to work for competitors after termination must execute a specific agreement.
How can one balance the need to protect the company with the employee’s right to professional growth and freedom of choice? The answer lies in Article 2125 of the Italian Civil Code, which sets precise rules to ensure equilibrium between these forces. It protects the company’s trade secrets and intangible assets while preventing the employee’s career from being stifled by overly rigid constraints. For a non-compete covenant to be valid, it must meet certain fundamental criteria: it must be in writing and provide adequate compensation for the employee. Additionally, the limits regarding the prohibited activity, duration (maximum five years for executives and three for other employees), and geographical scope must be clearly defined. But how does this work in practice? There is a wide range of case law on the subject.
The uncertainty of variable compensation
The law mandates that a non-compete covenant must provide financial compensation to offset the employee’s sacrifice of professional freedom. This compensation must be adequate and proportionate; a symbolic amount or one disproportionate to the imposed constraint is insufficient. Generally, case law has deemed fair an amount in the range of 20-30% of the annual gross salary for each year of duration of the non compete obligation, depending on factors such as the employee’s position, salary, and the territorial and temporal extent of the limitation. The broader the limitations, the higher the compensation must be. Establishing a fixed amount complies with Article 2125, ensuring clarity and certainty regarding the compensation due to the employee. But what happens if the amount is defined as an additional percentage of the monthly salary, thus variable over time? On this point, case law is divided.
The prevailing opinion is that this method is inadmissible because it introduces an unknown factor linked to the duration of the employment relationship, making the non-compete covenant excessively uncertain and indeterminate. In other words, the employee would not know in advance the total compensation, violating the requirement of certainty. An emblematic case is the Labor Section of the Court of Modena’s decision no. 89/2019, which declared a non-compete covenant void due to the vagueness of the consideration linked to the employment duration. The Court stated that if the compensation is agreed as a percentage of the salary, or as a fixed monthly sum, it is impossible to know the exact amount of the consideration in advance, as it is conditioned by a variable element consisting of the relationship’s duration. The decision also highlighted that if compensation is defined as an annual total but paid monthly, without specifying what happens in case of early termination, it creates further uncertainty that undermines the contractual balance between the non-compete covenant and the expected compensation. The result? The non-compete agreement is declared void.
This approach is becoming more widespread and was confirmed by the Court of Milan with decision no. 1189/2021, which declared void a non-compete covenant where the consideration was paid during the employment relationship without providing a minimum amount agreed upon by the parties. According to the judges, such a method does not guarantee real compensation for the sacrifice imposed on the employee, effectively transforming the consideration into a loyalty or retention bonus rather than an adequate reward for limiting professional freedom. Many other decisions share this orientation.
However, the jurisprudential framework is far from stable. Recently, the Supreme Court, with ordinance no. 33424/2022, in connection with its previous decision no. 2247/2021, questioned this approach, stating that the non-compete covenant is not automatically void if the consideration is paid directly into the paycheck and does not provide for a guaranteed minimum. What matters, according to the Supreme Court, is that the total amount is adequate for the sacrifice required by the employee, regardless of the payment method. This conflict of views has sparked a heated debate in doctrine, which has cautiously accepted the Supreme Court’s orientation, highlighting the risk of transforming the non-competition agreement into a mechanism too favorable for employers.
Geographicals limits
A crucial aspect for the validity of the non-competition agreement is the definition of the geographical area of application. The law requires that the territory be delimited in a precise and congruous manner, under penalty of nullity of the agreement itself. However, Article 2125 does not specify whether the limits should exclusively concern the national territory or if they can extend to the European Union or non-EU countries. This regulatory silence has given rise to a heated jurisprudential debate, made more complex by the spread of remote work, which allows people to work anywhere, breaking down traditional physical boundaries. According to a consolidated orientation, the pact must precisely indicate the territorial scope of the restriction, even though the use of general expressions such as “North Italy” is permitted (Court of Cassation, decision no. 4891/1998).
Even the most recent rulings reflect an extremely heterogeneous jurisprudential panorama. On one hand, the Court of Cassation recognized the validity of a pact extended to the entire national and European territory (Court of Cassation, decision no. 13282/2003), as proportionate to the international role covered by the employee. On the other hand, the Court of Bologna, with decsion no. 3258/2020, declared a covenant void due to the excessive breadth of the territory and the agreed object, highlighting how a limitation extended to the entire European Union can be excessively restrictive if not adequately balanced by adequate compensation that reflects the extent of the restrictions and the territorial limits set by the agreement.
Recently, the Bologna Court of Appeal (decision no. 539/2023) provided an innovative reading of the concept of “area,” interpreting it not as the physical perimeter of the work performance or the headquarters of the new employer, but as the “reference market” in which the effects of the working activity are to be felt. Specifically, the company accused a former employee of working for a competitor company with registered office, administrative headquarters, and production facilities in Italy, and of having attended trade fairs and conferences held in Italy. However, the Court clarified that, although the defendant physically worked in Italy, he was actually only involved with foreign markets and therefore his activity did not violate the geographical limit of the non-competition agreement, which included Italian territory. This approach shifts the focus from the physical location to the economic destination of the effects of the service, opening up new interpretative scenarios, especially in an increasingly digitalized work context.
Despite the differences, there is a trend in case law to accept non-compete covenants covering very large areas, including the whole of Europe, provided there is an overall balance between the territorial extension, duration, and object of the restriction. A significant example is the decision of the Court of Milan (no. 2533/2013), which considered valid a pact extended to all of Europe for three years but limited to specific activities and with particularly high consideration. This trend is also confirmed by the Court of Lucca (decision no. 705/2014), which considered valid a pact extended to Italy and generically abroad, justifying the territorial breadth with the global market of the reference sector (luxury boats) and the apical role covered by the employee. However, such a territorial extension may not be accepted in future decisions. Therefore, a jurisprudential framework full of shades and contrasts is outlined. On one hand, the need for companies to protect their know-how in globalized markets is recognized; on the other hand, an attempt is made to balance this protection with the worker’s right not to suffer excessive limitations to his professional freedom.
The unilateral right of withdrawal of the employer
Initially, the Court of Cassation deemed valid clauses that allowed the employer to unilaterally withdraw from the non-compete covenant. This approach was based on a literal interpretation of Article 1373 of the Italian Civil Code, which provides for the right of withdrawal in contracts with continuous or periodic execution. The Supreme Court, with decision no. 1686/1978, had endorsed this interpretation, opening the way to clauses that allowed the employer to free himself from the obligation when he deemed it more convenient. As a consequence, many non-competition covenant included such a clause. However, the jurisprudential framework has changed radically. The growing attention to the protection of the employee, as the weaker party in the relationship, has led to a critical review of this approach. Today, the prevailing opinion considers the unilateral right of withdrawal of the employer void, contrary to the protective ratio of Article 2125, which imposes a balance between the interest of the company and the sacrifice imposed on the employee.
A turning point came with the decision of the Court of Cassation no. 23723/2021, which established the invalidity of the withdrawal exercised during the relationship. The Court observed that the reciprocal obligations of the parties are already binding at the moment the agreement is signed, when the employee renounces part of his professional freedom in exchange for financial compensation. The possibility of unilateral withdrawal by the employer, even if exercised during the employment relationship, would make the commitment vain, leaving the employee in a condition of uncertainty about his professional future.
But the most controversial aspect concerns the so-called “option agreement”, which allows the employer to decide, after the termination of the relationship, whether or not to make use of the non-compete covenant. In this case, the invalidity comes from the fact that, once the employment relationship has ended, the employee must be able to freely plan his or her professional future. The possibility of a constraint like this would deprive him of the certainty necessary to evaluate new job opportunities, unduly conditioning his choices.
The Court of Cassation further consolidated this orientation with ruling no. 4032/2022, clearly stating that the non-compete covenant cannot be unilaterally annulled by the employer. Such a faculty would violate the very essence of the contractual synallagma, since it would allow the employer to benefit from the employee’s willingness to limit his professional freedom without compensating him in any way.
A recent and significant decision by the Court of Cassation (ordinance no. 10679/2024) has further strengthened the orientation aimed at guaranteeing certainty and stability in non-compete covenants, sanctioning the invalidity of clauses that subordinate the application of the restriction to the maintenance of the employee’s original duties. This ruling, which deals with a particularly controversial case, sheds new light on a fundamental principle: all the essential elements of the non-compete covenants must be determined “ex ante”, leaving no room for future changes or uncertainties. In the case in question, the agreement stipulated that the non-compete covenant would cease to apply if, during the term of the relationship, the employee’s duties changed. Apparently, a commonsense clause, designed to adapt the restriction to the actual job responsibilities; yet the Court of Cassation noted that this provision introduced an element of unacceptable indeterminacy. If the applicability of the agreement depends on a future and uncertain event – such as a change in duties – the contractual synallagma is undermined, compromising the stability of the reciprocal obligations. The Supreme Court left no place for ambiguous interpretations: in order to be valid, a non-compete covenant must contain all the essential elements already at the time of signing.
Conclusion
Considering all this, it is clear that case law is playing a crucial role in defining the boundaries of non-compete covenants, starting from the dictates of Article 2125 of the Italian Civil Code and moving in complex and constantly evolving circumstances. Between conflicting interpretations and emerging guidelines, the goal is to guarantee a balance between the parties, protecting the professional freedom of the employee without compromising the company’s right to protect its economic interests. This continuous search for balance allows us to glimpse future developments in regulations and case law in a context that, today more than ever, requires clear answers that can adapt to changes in the labor market. In this scenario, to protect their know-how and business assets, employers must pay significant attention to drafting employees’ post-contractual non-compete covenants to ensure they are fully valid and enforceable.
