Employment Law – The ‘non-compete’ clause

The non-compete clause, being a restrictive covenant which is usually included in employment contracts, is not regulated by Maltese Law. Hence, the enforceability or otherwise shall be determined through judicial proceedings before the Maltese Courts.

Recently, the Court of Appeal in Malta in Cutrico Services Ltd v. Josef Penza shed some light on the ‘non-compete’ clause or, in simpler terms, the clause prohibiting ex-employees from soliciting, interfering or endeavouring to entice a customer away from the employee’s ex-employer’s business. A clause/restrictive covenant which is debatable for its enforceability or rather, lack of, before the relevant courts.

According to Maltese case-law[1], for a ‘non-compete’ clause to be upheld it must:

1. be in writing;
2. be certain in terms object, time and place;
3. include a compensation for compliance with such clause; and
4. reasonable and hence only limited to strictly protect the employer’s interests.

Within the above-mentioned interpretation, the Court held that such aforementioned clause shall not be considered null and void in its entirety but only in relation to clients which an ex-employee did not service/dealt with during his employment with his ex-employer. This interpretation was in clear contradiction to the interpretation given by the First Hall of the Civil Court which declared the clause as null and void in its entirety.[2] The appellate Court also determined that the period of two years included within the restrictive covenant was also reasonable.

Although the interpretations from the two Courts were distinct, the ultimate decision of the case was not altered and the decision held by the First Hall of the Civil Court was reaffirmed as the Court of Appeal believed that due to the ex-employee’s actions, the latter’s ex-employer had suffered no sorts of damages and that such client had remained a customer of the employee’s ex-employer. Hence, it was determined that the ex-employee’s actions were too insignificant to enforce the penalty expressed within the restrictive covenant clause.

Although the ultimate outcome of the above discussed case was in no way altered, the interpretation of the ‘non-compete’ clause provided by the Court of Appeal shall now serve as a better guidance to many, especially employers, employees, lawyers and lawmakers. Furthermore, such decision and interpretation is a clear indication that an employment contract and the terms and conditions within shall be drafted attentively and assiduously.

[1] Attilio Vassallo Cesareo and Saviour Coppini in representation of International Machinery Limited vs. Anthony Cilia Pisani – citation No. 254/1986/1 – 31^st January 2003 – First Hall of the Civil Court – Presiding Judge: Mr Justice Sciberras. Paul Pisani - Managing Director in representation of Leisure Marketing Limited vs. Reuben Vella Bray – 5^th October 1994 per Mr Justice Said Pullicino, First Hall of the Civil Court, 5 October 1994.

[2] Cutrico Services Ltd. (C-3517) vs. Josef Penza – Case No. 524/2014 SM – 23^rd February 2017 – First Hall of the Civil Court – Presiding Judge: Hon. Silvio Meli. Case appealed on the 4^th May 2022 – Case No. 524/14/2 – Presiding Judges: Chief Justice Mark Chetcuti, Hon. Giannino Caruana Demajo & Hon. Anthony Ellul.

About the Author

This article has been authored by Dr. Bjorn Camilleri, Regulatory & Business Advisor. For more information, he may be contacted on [email protected].