Non-competition Obligation - Intervention of the Judge

In our February review, we examined the validity and limitations of non-competition clauses in employment agreements. This article will look at the issue of the judge's intervention in non-competition regulations.

As a reminder, if the employer wishes the prohibition of competition to continue after the termination of the employment agreement, the parties must agree on this in writing. The content and limits of the agreement between the employee and the employer are set out in Article 444 of the Turkish Code of Obligations No. 6098 (the "TCO") entitled "Non-Competition". According to this article, the employee may undertake not to compete with the employer after the termination of the employment agreement. In particular, an employee may undertake, in writing, to refrain from opening a competitive business on their own account, working in another competitive business or otherwise entering into a relationship of interest with a competing business, for a certain period of time, in a specified location and field of activity.

Although the rule in contract law is that the parties are bound by the provisions after the conclusion of the contract in accordance with the principle of fidelity, the prohibition on competition sometimes exceeds the limits set by the TCO and may require the intervention of a judge.

In particular, if the circumstances change or are aggravated after the conclusion of the contract, it may not be equitable to expect the parties to perform the obligation in full. This is because, if the conditions at the conclusion of the contract have changed, the content of the debtor's obligation should also be changed and it should be possible to adapt the contract to the changing conditions. The adaptation of the contract to the changing conditions may be achieved through a provision inserted into the contract by the parties, or through a legal regulation. If there is no provision in the contract or in the law, the judge may decide to adapt the terms of the contract at the request of the contracting parties.

As a matter of fact, according to Article 445/2 of the TCO, the judge may limit an excessive prohibition on competition in terms of its scope or duration by freely evaluating all the circumstances and conditions, and by taking into account the counter-performance that the employer may have undertaken in an equitable manner.

When we consider the issue in terms of the non-competition obligation within the framework of labour law, if a contractual provisions exceeds one or all of the limits set by Article 445 of the TCO, the entire agreement regarding the prohibition should not be deemed invalid. Article 445 of the TCO states that if the prohibition on competition is excessively limited in terms of location, time and type of work, only the excessive part of the agreement should be invalid, not the entire agreement.¹

With an agreement that is deemed to exceed the appropriate limits in terms of time, location and type of work, and thus endangers the economic future of the employee, the judge may bring things to an appropriate level. In the case of a non-competition agreement that endangers the economic future of the employee, the judge has the authority to totally abolish the prohibition altogether. The judge may exercise this power of intervention either during the examination of a lawsuit initiated by the employee, or following an objection by the employee against a lawsuit initiated by the employer alleging a violation of the prohibition.²

While exercising the right of adaptation, the judge should balance the interests of the employer and the economic future of the employee by considering the specific situation when the employment agreement was terminated and will decide accordingly. This is because the judge must find a solution in accordance with the interests of the employee and the employer. In determining the excessiveness of the non-competition obligation, an assessment should be made according to whether the employer has incurred any liability in return for the non-competition obligation undertaken by the employee. If there is an obligation on the employer in return for the non-competition obligation on the employee, the excessiveness of the non-competition clauses and the risk of endangering the economic future of the employee will be mitigated or eliminated altogether.³

However, the judge cannot decide to hold the employer liable for a counter-performance that is not included in the contract, or to expand the scope of an obligation agreed in the contact. In addition, when intervening in the prohibition on excessive competition in order to eliminate the unfairness, the decision of the judge will have retroactive effect.⁴

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Footnotes

1 Yargıtay 11. Hukuk Dairesi E. 2019/1461 K. 2019/8220 T. 16

2 Yargıtay 9. Hukuk Dairesi E. 2023/15211 K. 2023/16651 T. 07.11.2023

3 Tuncay, s. 1066. Şahlanan, Rekabet Yasağı, p. 83. Başpınar, p. 32-33.

4 Soyer, Rekabet Yasağı, p. 73.