Restrictions on additional employment – can an employee be hired exclusively?

Under the current provisions of the Labour Code, an employer cannot freely impose a ban on an employee taking up additional work. Such a restriction is only permitted by properly applying a non-compete clause.

Previous practice
Until its amendment in 2023, the Labour Code did not address the issue of an employee’s additional employment (except for the provisions on non-compete clauses), which caused considerable uncertainty in practice. Referring to the employee’s obligation to act in the employer’s best interest (Article 100 §2 point 4 of the Labour Code), employers often introduced clauses in employment contracts restricting or prohibiting additional employment. In some cases, employees were obliged to inform their employer about any additional activities. However, case law generally held that employers could not arbitrarily limit an employee’s additional professional activity unless justified by a legitimate interest.

Freedom to take up additional employment
Since the amendment to the Labour Code, which came into force on 26 April 2023 as part of the implementation of Directive (EU) 2019/1152 of the European Parliament and Council, employers cannot prohibit employees from simultaneously being employed by another entity or providing services for such entity on a different basis, such as running a business or entering into a B2B contract, provided this takes place outside the working hours agreed with the primary employer. This additional work cannot be used as a reason for terminating the employment contract.

The Polish legislator has not introduced restrictions on additional employment, which are permitted by the Directive. Therefore, employers are essentially left with only one option – concluding a non-compete agreement under Article 101(1) §1 of the Labour Code, provided there are grounds for doing so.

Non-compete agreement
Under Article 101(1) §1 of the Labour Code, an employee may not, during the term of employment, engage in competitive activity against the employer or work for an entity conducting such activity, whether based on an employment relationship or other arrangements (non-compete clause). Concluding such an agreement (often referred to as a ‘loyalty clause’) allows the employer to impose restrictions on the employee’s involvement in other activities that conflict with the employer’s interests and enables the monitoring of compliance, such as requiring the employee to notify the employer about additional professional activities.

Although a non-compete agreement is a separate document from the employment contract, it is so closely linked that, under certain circumstances, refusal to sign it may be grounds for the employer to refuse employment or to terminate the employment relationship.

A different type of non-compete agreement applies after the termination of employment (Article 101(2) §1 of the Labour Code). Such an agreement must include compensation of at least 25% of the employee’s last salary which was paid during the period corresponding to the period of the restriction.

These agreements have become common practice in many companies, especially for senior management or employees considered valuable for other reasons. However, they are not always the ideal solution for protecting the employer’s interests. Generally, a non-compete agreement after the end of employment can only be concluded with employees who have access to particularly sensitive information that could harm the employer if disclosed.

While the employer decides which information is particularly sensitive, offering a non-compete clause to someone without access to such information serves little purpose and could result in unnecessary compensation payments. Simply holding a high position in the company does not necessarily mean access to crucial (sensitive) information, as valuable knowledge is often held by lower-level employees such as those working in  IT system security or production technology. An employer’s misjudgment cannot be grounds for avoiding the legal consequences of the agreement. Likewise, an employee cannot unilaterally declare that they are not bound by the non-compete agreement on the grounds that they do not possess sensitive information.

Non-compete agreements after short-term employment
One issue which employers often face when signing a non-compete agreement alongside an employment contract is the obligation to pay compensation for an excessively long period relative to the length of employment (for example when the contract ends after a probationary period). In such cases, the non-compete clause remains in force for the entire agreed period unless the agreement explicitly allows for early termination under specific conditions.

Determining the compensation amount can be challenging. However, it would be incorrect to calculate the compensation solely based on the actual wages received (as per the literal wording of Article 101(2) §3 of the Labour Code). If the employee was employed for a shorter period than the duration of the restriction, it is necessary to estimate the wages the employee would have earned had they worked for a period equivalent to the restriction period.

Given these consequences, the duration of the non-compete clause after employment must be carefully determined. It is possible to introduce a rule that the restriction period will be proportionally extended (up to a specified maximum) based on the employee’s length of service with the employer.

Obligation to inform the employer about additional employment
A question arises as to whether the current Labour Code allows an employer to require employees to inform them about additional employment. Since this is not explicitly regulated in the Labour Code, it should be assessed based on the general obligations of the employee, such as whether this information is necessary to protect trade secrets (Article 100 §2 point 4) and whether it respects the employee’s right to privacy (Article 11(1)) and the prohibition of discrimination (Article 11(3)).

Non-compete agreements in the event of a transfer of undertaking
The general rule is that a post-employment non-compete agreement does not automatically transfer to a new employer in the event of a transfer of undertaking.

Employers often undergo transformations to adapt their employment structure to market demands or financial circumstances. A typical example is the transfer of part of a business to another company, resulting in the automatic transfer of employees under Article 23(1) of the Labour Code. Under this provision, the new employer is legally bound by existing employment contracts and related employee rights.

It is clear that employment-related non-compete clauses transfer to the new employer. However, there was significant doubt about whether post-employment non-compete agreements remained in force after the transfer. This is because a post-employment non-compete agreement under Article 101(2) §1 of the Labour Code is not considered part of the employment relationship.

Ultimately, case law has resolved this issue by determining that post-employment non-compete agreements do not transfer to the new employer under Article 23(1) of the Labour Code.

Tax implications of non-compete agreements
Since the employer is obliged to pay compensation for post-employment non-compete agreements, it is essential to consider the tax implications.

According to Article 12(1) of the Personal Income Tax Act (PIT), taxable employment income includes all cash payments and the monetary value of benefits in kind or their equivalents, regardless of the source. Although this provision does not explicitly mention post-employment compensation, the list of taxable income is open-ended, meaning compensation for a non-compete clause is taxable employment income.

Any doubts are clarified in Article 21(1) point 3 of the PIT Act, which explicitly states that compensation for a non-compete clause is not tax-exempt.

Non-compete clauses in civil contracts
The above explanations apply only to employment relationships. In civil law relationships (service contracts or B2B agreements), the principle of contractual freedom applies. The parties can impose almost any restrictions on competitive activity, provided they do not violate antitrust regulations. The issue of compensation for complying with a non-compete clause is also left to the discretion of the parties.