non compete

Non compete clause: valid in Dominican Republic?

non compete

A non compete clause (also called “covenant not to compete”) is a clause under which one party agrees not to enter into any activity that could be considered as competition against another party. This is usually required by the employer to the employee, by a business to a consultor or among partners.

The use of such clauses is premised on the possibility that upon their termination or resignation, an employee or business partner might begin working for or with a competitor or starting a business and gain competitive advantage by exploiting confidential information about their former employer or former partner’s operations or sensitive information such as customer/client lists, business practices, upcoming products, technology, strategies and marketing plans. That is, it lessens the possibility that knowledge gained by an employee or business partner will be used in the future to compete against them.

In exchange for not competing, the party is paid a fee (or it’s a condition of their engagement). In most cases, the non compete agreement would prevent someone who signed it from competing directly or indirectly, that is, by working/consulting for or investing in a competitor’s business.

There have been discussions on whether a non compete clause is valid in the Dominican Republic since Employment Law is very protective of the employees and also because the Dominican Constitution establishes the prohibition to limit the access to employment opportunities and it establishes full freedom of commercial activity as a public order issue which cannot be overturned by private agreement.

Nonetheless, an agreement prohibiting a specific person from carrying out precisely defined activities in exchange for a fee or any consideration would, in principle, be valid in the Dominican Republic, the context of a specific agreement for a justified case such as that of a former employee or a shareholder selling his or her interests in a company.

Most employment experts agree that a non compete clause or agreement shall be deemed legally binding so long as the clause contains reasonable limitations as to the geographical area and time period in which an employee of a company may not compete.

There are no Dominican court decisions on the validity of a non compete clause.

However, there are precedents from French courts. And because in 1844, the Dominican Republic adopted the French Civil and Commercial Codes (which, except for sporadic modifications, largely remain in effect) French judicial precedents serve as a guide for Dominican courts for the solution of the cases which are submitted for their consideration in those cases in which we are dealing with the interpretation and application of identical laws and facts.

French court precedents have traditionally required that the following conditions be met:

  • The prohibited activities which the person in question may not exercise must be clearly and precisely established within the clause/agreement, and
  • The prohibition must be limited both in time and in space, unless there are circumstances that reasonably allow just one of these limitations

A penalty is usually defined within the non compete clause or non compete agreement, which would be applicable in case of breach of the clause. By making the penalty a contractual matter, many of the problems inherent to a court action, such as evidence and justification of the damage suffered by the company, can be avoided.

 




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