Non-compete clause in mergers and acquisitions and right to work

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Non-compete clauses that are usually agreed in mergers and acquisitions are, by definition, agreements prohibited by article 101 of the Treaty on the Functioning of the EU (TFEU) and article 1 of the Spanish Competition Act. However, these are valid if they meet the following requirements.

Firstly, the clause must meet the following conditions of article 101.3 TFEU:

(a) contribute to improving the production or distribution of the products or to promoting technical or economic progress;

(b) allow users a fair share of the resulting benefit;

(c) not impose restrictions which are indispensable to the attainment of these objectives; and

(d) not give the possibility of eliminating competition in respect of a substantial part of the products concerned.

Such a clause must also:

(a) be directly related to the transaction;

(b) be objectively necessary for the completion of the transaction; and

(c) be proportionate to the effects of the transaction.

If it meets these requirements, a non-compete clause can be agreed and, in addition, it must also meet the limits referred to:

(a) material scope (including services and/or products);

(b) territorial scope; and

(c) temporary scope (duration of the obligation).

The analysis of the validity and scope of non-compete clauses has been extensively developed, including many pronouncements by the CJEU, by the internal courts of the Member States and by the European Commission. However, there is one issue that has not been assessed in detail, which is the weighting of the right to work of people who act, at the same time, as sellers and workers of the transferred company.

The first question to be resolved when we find ourselves in situations like this, where an employment relationship (the employment agreement) and a commercial relationship (the shares purchase agreement) coexist, refers to the preference between one jurisdiction and another (the labour and civil/commercial jurisdictions). This question has already been resolved by the Spanish courts, and the commercial jurisdiction should prevail due to the principle of speciality (see, for example, Spanish Supreme Court judgment 303/2016 of May 9). However, this does not prevent the analysis of the validity and scope of the non-compete obligation considering the labour law (on this subject, see judgment 350/2015 of the Madrid Provincial Court).

Consequently, when a seller-worker's non-compete obligation exceeds the limits laid down in the labour regulations, i.e. in Spain 6 months for non-technical workers and 2 years for technical workers (see article 4.1 of the Workers' Statute, article 8.3 Royal Decree 1382/1985 and article 35.1 of the Constitution), the implications that the clause may have on the seller-worker's right to work must be analyzed and balanced with the transaction’s needs.

In this analysis, the main issue to be resolved is if the non-compete clause meets the requirements for its validity, in accordance with the TFEU and the Competition Act, which we have already summarized at the beginning of this post. However, once the commercial regulations have been complied, together with this analysis, the effect of this obligation must be weighed against the seller-worker's right to work. The way to do this is to analyse the specific case and consider whether the obligation could have been more specifiecally defined to facilitate the seller-worker's access to the labour market, once the six-month or two-year period has elapsed (in case of Spain). This does not prevent the non-compete obligation from having a duration of 3, 5 or more years. However, it does mean that the obligated person should have the possibility to enter the labour market after these periods. If the obligated party is, for example, a doctor, this seller-worker should be able to exercise his profession after 2 years, without prejudice to preserving the non-compete obligation for a longer period in certain territories.