Non-compete clauses: the remuneration threshold

Non-compete clauses appear in many employment contracts, and in many of them they have no effect. The most common reason is not a drafting issue but a figure.

The remuneration threshold

A non-compete clause only binds if the monthly remuneration in the last month of the employment relationship exceeds a statutory threshold. This threshold is linked to the maximum contribution basis under the ASVG and therefore rises every year. Anyone who uses a contract template unchanged for years will, at some point, have let the clause become ineffective for part of the workforce – without noticing.

What must also apply

Even above the threshold, the clause is only valid if it is objectively limited to the employer's line of business, does not extend too far geographically, lasts no more than one year and does not unreasonably impede advancement. Where the employer gives notice without the employee being at fault, the employer generally cannot rely on the clause.

For contract drafting

Two points are worth the effort: checking the clause annually against the current threshold, and setting any contractual penalty at a realistic level. It is subject to the court's judicial power to reduce it – a penalty equal to a year's salary looks deterrent in the contract and rarely survives proceedings.