Labor | Non-compete Clauses: Points of Attention to Companies under Brazilian Labor Law

The non-competition clause is a relevant instrument for protecting strategic information and market position after the termination of professional ties. This is an obligation not to do something, designed to prevent former employees, partners or service providers from working for competitors or setting up a competing business using knowledge obtained in the previous relationship.

Its use is frequent, but involves challenges, as it imposes limits on constitutional rights – especially professional freedom (art. 5, XIII, Brazilian Federal Constitution) – and interacts with free initiative and free competition (art. 170, Brazilian Federal Constitution). Therefore, the drafting must be technically careful to reduce the risk of legal challenge and loss of effectiveness.

Below are four essential points for structuring the non-compete obligation:

1. Purpose: Objectively define the purpose: to protect the company’s know-how, sensitive data and commercial relationships. Review the contract to eliminate permissions that contradict this purpose. Assess the real need for the restriction in light of the functions performed and access to strategic information. In general, the clause shows greater adherence when applied to executives and roles with access to relevant confidential information.

2. Company Option: Provide that the company may choose to apply the clause upon termination of the relationship, depending on the convenience of the specific case. This flexibility avoids unnecessary costs when the restriction does not provide significant protection (e.g., low strategic impact ties).

3. Deadlines, Territory and Scope: Establish clear and proportional limits on duration, geographic scope and area of operation. Generic or excessive wording increases the risk of invalidation. Parameters aligned with the sector, the size of the company and the market effectively explored tend to be better accepted. 

4. Financial Consideration: Restrictions on professional practice require compensation. Define objective criteria for compensation during the non-compete period, adjusted to the position, the sensitivity of the information and the extent of the limitations. A ausência ou insuficiência dessa contraprestação fragiliza a cláusula.

An effective non-compete clause combines clear purpose, optional application, proportional limits, and adequate compensation – protecting the business without excess and with greater certainty regarding its future validity.