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Summary Report on Judicial Practice Relating to Non-compete Agreements in Hungary

Summary Report on Judicial Practice Relating to Non-compete Agreements in Hungary

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Under a non-compete agreement, the employer may restrict the ex-employee’s business activity for a period of maximum 2 years following the termination of employment and in exchange, the employer shall pay adequate compensation to the employee - the amount of which may not be less than 1/3 of the base wage due for the same period. The Hungarian Supreme Court (Curia) published in September 2019 a report on the judicial practice relating to non-compete agreements, which highlights the following findings:

It is usually stipulated in the non-compete agreements that the employee may not enter into employment relationship with a company which can be deemed as the employer’s competitor. According to the summary report, from the fact that according to the company register the two companies carry out the same activities, it might be implied that they are competitors; however, there is still a room for the employee to prove that at the new employer he actually performs completely different tasks in a different field; therefore, he did not breach the non-compete agreement.

According to the judicial practice, the amount of compensation payable to the employee in exchange for the non-compete obligation must reflect the severity of the restrictions imposed on the employee’s activity. When assessing this criterion, the age and qualifications of the employee, as well as the labour market in the given location must be taken into account. Furthermore, the compensation might not be included in the employee’s salary and it might not be a remuneration in kind.

If the right of withdrawal is included in the non-compete agreement, the parties are entitled to withdraw from it before the termination of employment. This practically means that the other party should receive the declaration of withdrawal on the date of termination of employment at the latest. According to the report, the courts also made it clear in several decisions that if the parties terminate the employment relationship with mutual agreement and declare that they have no claims against each other, it does not mean that they withdraw from the application of the non-compete agreement set out earlier in the employment contract.

By Levente Csengery, Founding Partner, KCG Partners Law Firm

Hungary Knowledge Partner

Nagy és Trócsányi was founded in 1991, turned into limited professional partnership (in Hungarian: ügyvédi iroda) in 1992, with the aim of offering sophisticated legal services. The firm continues to seek excellence in a comprehensive and modern practice, which spans international commercial and business law. 

The firm’s lawyers provide clients with advice and representation in an active, thoughtful and ethical manner, with a real understanding of clients‘ business needs and the markets in which they operate.

The firm is one of the largest home-grown independent law firms in Hungary. Currently Nagy és Trócsányi has 26 lawyers out of which there are 8 active partners. All partners are equity partners.

Nagy és Trócsányi is a legal entity and registered with the Budapest Bar Association. All lawyers of the Budapest office are either members of, or registered as clerks with, the Budapest Bar Association. Several of the firm’s lawyers are admitted attorneys or registered as legal consultants in New York.

The firm advises a broad range of clients, including numerous multinational corporations. 

Our activity focuses on the following practice areas: M&A, company law, litigation and dispute resolution, real estate law, banking and finance, project financing, insolvency and restructuring, venture capital investment, taxation, competition, utilities, energy, media and telecommunication.

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The firm advises a broad range of clients, including numerous multinational corporations. Among our key clients are: OTP Bank, Sberbank, Erste Bank, Scania, KS ORKA, Mannvit, DAF Trucks, Booking.com, Museum of Fine Arts of Budapest, Hungarian Post Pte Ltd, Hiventures, Strabag, CPI Hungary, Givaudan, Marks & Spencer, CBA.

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