RESTRAINT OF TRADE AGREEMENT
This agreement (hereinafter the "Agreement") has been entered into in [City where the contract is signed] on [Contract date] between the following parties (hereinafter together the "Parties"):
1. PARTIES
1.1 Party 1:
[Name of Party 1 (employer / company)]
Registry code: [Commercial Register code of Party 1]
(hereinafter "Party 1")
1.2 Party 2:
[Name of Party 2 (employee / other party)]
Personal identification code / registry code: [Personal identification code or Commercial Register code of Party 2]
(hereinafter "Party 2")
1.3 Type of agreement: [Type of agreement].
2. BASIS
2.1 This Agreement is EMPLOYMENT-BASED and §§ 23–26 of the Employment Contracts Act apply to it. The terms "Employer" (Party 1) and "Employee" (Party 2) are used. Date of conclusion of the related employment contract: [Date of conclusion of the related employment contract]. Position: [Position].
2.2 The special economic interest of the Employer justifying the necessity of the restraint: [Employer's economic interest (why the restraint is necessary)]. A restraint of trade agreement may be entered into if it is necessary to protect a special economic interest of the Employer, in particular if the employment relationship enables the Employee to become acquainted with the Employer's customers or production and business secrets and the use of that knowledge may cause significant damage to the Employer (Employment Contracts Act (TLS) § 23 (2)).
2.3 The restraint must be reasonably limited in terms of territory, time and subject matter and recognisable to the Employee; an agreement contrary to these requirements is void (TLS § 23 (3)–(4)). The restraint does not prohibit the Employee from working in the entire field, but only in the activities described in clause 4 which may actually harm the protected interest of the Employer. By this Agreement, the Employer notifies the Employee of the content of the restraint of trade agreement (TLS § 6 (3)).
3. PERIOD OF VALIDITY OF THE RESTRAINT
3.1 The restraint applies: [The restraint applies].
3.2 Duration of the restraint after the termination of the contract: [Duration of the restraint after the contract ends (in months)] months. A restraint applicable after the termination of the employment contract is valid only if it has been entered into in writing and for up to one year from the termination of the employment contract (TLS § 24 (1) 2) and 4)).
4. RESTRICTED ACTIVITIES
4.1 Restricted activities: [Restricted activities].
4.2 Competitors/fields with which activity is restricted: [Competitors/fields with which activity is restricted].
4.3 Geographical scope: [Geographical scope].
4.4 During the period of validity of the restraint and to the extent specified in clauses 4.1–4.3, Party 2 also undertakes not to solicit customers or employees of Party 1 to terminate or reduce their cooperation with Party 1 in the interests of a competing activity. The restraint also extends to activities carried out by Party 2 through or on behalf of a third party.
4.5 The restraint does not extend to the following: [Exceptions to the restraint (what is permitted)].
5. COMPENSATION
5.1 Monthly compensation: [Monthly compensation (€) — mandatory for an employment-based restraint applying after the contract ends] euros. If the restraint applies after the termination of the employment relationship, the Employer pays the Employee reasonable monthly compensation for complying with the restraint (TLS § 24 (3)); without compensation, a restraint applicable after the termination of the employment contract is not valid (TLS § 24 (1) 3)). The reasonableness of the compensation is assessed taking into account the scope of the restraint and the Employee's previous wages; in case law, compensation of approximately 20% of the Employee's wages has been considered insufficient. The Employer cannot rely on the voidness of a non-compliant agreement if the Employee complies with the agreement (TLS § 24 (2)).
5.2 Compensation payment schedule: [Compensation payment schedule].
6. CONTRACTUAL PENALTY
6.1 The Parties may agree on a contractual penalty for breach of the restraint. Contractual penalty for a breach: [Contractual penalty for a breach (€)] euros. A contractual penalty may be agreed for breach of the restraint of trade obligation (TLS § 26 (1)); case law has considered a contractual penalty in the range of 4–6 months' salary to be reasonable. The Employee's monthly salary (for reference): [Employee's monthly salary (€) — only for assessing the reasonableness of the contractual penalty] euros. A contractual penalty does not preclude a claim for compensation of damage not covered by the contractual penalty (Law of Obligations Act (VÕS) § 161 (2); in the case of an employment-based Agreement, TLS § 26 (2)). A court may reduce an unreasonably high contractual penalty (VÕS § 162 (1)).
7. CANCELLATION
7.1 The Employer may cancel the restraint of trade agreement, including an agreement applicable after the termination of the employment relationship, at any time by giving the Employee at least 30 calendar days' advance notice (TLS § 25 (1) and (4)); compensation is paid until the cancellation takes effect. The Employee may cancel the agreement by giving at least 15 calendar days' advance notice if the Employer's interest in restricting competition is no longer reasonable due to a change in circumstances (TLS § 25 (2)), and also within 30 calendar days after the Employee has cancelled the employment contract due to a material breach of the employment contract by the Employer (TLS § 25 (3)). Notice period for cancellation by Party 1: [Notice period for cancellation by Party 1]. If it is shorter than 30 calendar days, the statutory period of 30 calendar days applies.
7.2 The notice of cancellation is submitted in a format which can be reproduced in writing.
8. FINAL PROVISIONS
8.1 The Agreement is governed by the law of [Governing law].
8.2 The Agreement is entered into in writing. Amendments to the Agreement are made in writing. If any provision of the Agreement is or becomes invalid, this does not affect the validity of the remaining provisions.
8.3 Disputes arising from the Agreement are resolved by negotiation. If no agreement is reached, the dispute is resolved by a labour dispute committee or a court. The Agreement enters into force once both Parties have signed it.