Non-Compete Clauses in Serbia

Where is the line between protecting an employer’s business interests and an employee’s freedom to work? How can an employer protect its interests and prevent the real and financially measurable risk that may arise when a key employee leaves?

The non-compete clause, as an employment law instrument, provides an answer to these and many other questions – provided that it is used in accordance with the law.

In this article, we answer the six practical questions most frequently asked about it and offer specific recommendations for employers.

IN THIS ARTICLE:

1. When can an employer agree a non-compete restriction at all?
2. How does a restriction during employment differ from one after employment ends?
3. What conditions must be met for the clause to be valid?
4. What can an employer do when an employee breaches the restriction?
5. Can an employer unilaterally release itself from the clause?
6. What specifically should employers do?

1. The Basic Condition for a Valid Clause

The Labour Law in Serbia permits a non-compete restriction to be agreed in the employment contract or subsequently, by an annex to the employment contract – but not as a universal measure for every employee. The Law expressly ties this possibility to situations in which the employee, through their work for the employer:

• acquires new, particularly important technological knowledge;
• comes into contact with a wide circle of the employer’s business partners; or
• becomes aware of important business information and trade secrets.

If the employee’s position involves none of these three elements, there is no basis for including the clause in the contract. In the event of a dispute, the court will assess whether the nature of the work genuinely justified the restriction, which is why it is important for the employer to exercise this right properly and selectively.

2. Two Different Regimes: During and After Employment

2.1. Non-compete restriction during employment

The restriction under Article 161 of the Labour Law takes effect as soon as it is agreed properly and reflects the employee’s loyalty while employed. The employee may be prohibited, without the employer’s consent, from performing competing work in their own name and for their own account, as well as in the name and for the account of another legal entity or natural person. The Law does not provide for separate compensation for this period.

2.2. Non-compete restriction after employment ends

The restriction under Article 162 of the Labour Law is an additional, stricter category that must be separately agreed and that requires payment of monetary compensation to the employee in order to have any legal effect at all.

3. Other conditions for a Valid Non-Compete Clause

3.1. Precisely defined activities

The employment contract should specify exactly which activities the employee may not perform. A generic wording such as “the employee may not do anything that competes with the employer” is risky – in case law and legal scholarship, an overly broad and vaguely worded restriction is regarded as an unjustified limitation of the freedom to work rather than legitimate protection of a business interest. The more precisely the employer’s business activity is described in the clause itself, the more resistant the clause is to challenge.

Good practice is for the clause to contain a general description of the restriction, followed by a non-exhaustive list of specific activities that are “in particular” considered competing (e.g. “brokerage services in transactions involving real estate intended for business activities (business premises)” or “organisation of rail transport and logistics”).

3.2. Territorial limitation

The clause must have a defined geographical scope, proportionate to the nature of the employer’s business. Territorial scope is most often regulated by the employer’s general act (the Employment Rulebook), but it may also be set out directly in the employment contract. A restriction covering “the entire territory of the Republic of Serbia” for an employer operating exclusively in one city is unlikely to survive in court. On the other hand, for activities that are broader by nature (e.g. IT services, remote work, exports), a wider territorial scope may be justified – but this should be substantiated by the nature of the work, not merely written into the contract.

3.3. Time limitation – no more than two years after employment ends

The Law sets a maximum period of two years for the clause to apply after employment ends. Any longer period cannot take effect to the extent that it exceeds the statutory maximum, regardless of the fact that the employee signed it.

3.4. Monetary compensation – a condition without which the clause has no effect after termination

A post-employment non-compete clause is a mutual obligation. The employer obtains a restriction on the employee’s freedom to engage in competing work, but in return assumes the obligation to pay compensation for the entire period during which the restriction applies. This compensation is not salary in the technical sense, but compensation for the fact that the employee’s ability to find employment or be engaged in their profession is restricted; consequently, no mandatory social insurance contributions are payable on it, but it is subject to personal income tax. This has been confirmed by Opinion of the Ministry of Finance No. 011-00-325/2015-04 of 14 October 2015, published in the Ministry’s Bulletin No. 10 of October 2015.

In practice, compensation is most often agreed as a monthly amount (a fixed amount or an amount set as a certain percentage of the employee’s base salary), with a clearly defined payment deadline – e.g. by the end of the current month for the previous month in which the restriction applied.

IMPORTANT — no compensation, no protection

Although the Law does not prescribe a minimum amount of compensation, this does not mean that employers may omit it. If the amount of compensation has not been agreed, the post-employment non-compete provision has no legal effect.

If only a token amount has been agreed, there is a risk that the clause will be found unfair, i.e. disproportionate to the employee’s obligation – which in practice means that the employer is left without protection at the very moment it needs it most.

4. Breach of the Clause – Mechanisms for Sanctioning a Breach

When an employee breaches a validly agreed non-compete restriction, the employer has several mechanisms at its disposal:

• Compensation for damage – a right of the employer provided for by the Labour Law;
• Termination of the employment contract – if the breach occurs during employment, it may as a rule be treated as a breach of work obligations, subject to the standard procedure preceding termination (a warning and a time limit for the employee to respond);
• Repayment of compensation already paid – it is customary and justified practice for the contract to provide that the employee must repay the compensation received if they breach the restriction after employment ends, independently of the employer’s other rights. The contract should clearly specify whether the entire amount received is to be repaid or only the portion relating to the period of the breach.

5. Can an Employer Unilaterally Release Itself from the Clause?

For a long time, the prevailing position in case law was that, since the clause forms part of the employment contract, it could be amended or terminated only by mutual consent of both parties (by an annex), and not by a unilateral decision of the employer. More recent case law (for e.g. Supreme Court Decision No. Rev2 1330/2022 from February 28th, 2024), however, takes the view that the employer may, by a unilateral act, release the employee from the obligations under the non-compete clause. This gives employers additional flexibility where they assess that the employee’s departure cannot cause any damage.

The safest approach, however, is to provide for this option expressly in the employment contract itself: that the employer has the option to waive the restriction before or after employment ends, with a clear rule on the period for which the employee remains entitled to compensation (e.g. for each commenced month of the restriction until the date of receipt of the written notice of waiver).

6.Recommendations for Employers

1. Assess positions before contracting. Provide for the clause only for positions in which employees genuinely acquire special knowledge, contacts or access to trade secrets – e.g. managers, key specialists, sales and client-facing roles. A universal clause for all employees weakens its defence in a dispute.
2. State the basis in the contract itself. Specify which of the statutory conditions is met (technological knowledge, circle of business partners, trade secrets) and why it is relevant to the specific position.
3. Describe competing activities precisely. Instead of a general wording, list the specific activities that are in particular considered competing.
4. Define the territory in proportion to your business. Regulate it in the contract or the Employment Rulebook and make sure it corresponds to the actual market in which you operate.
5. Separate the two regimes. Regulate the restriction during employment and the restriction after employment ends as separate sections, with a clearly defined duration (no more than two years after termination).
6. Agree realistic compensation and a payment deadline. Specify the amount, currency, payment frequency and deadline precisely; a token amount leaves room for challenge.
7. Provide for a waiver option. Agree the employer’s right to waive the restriction by written notice, and specify from when the obligation to pay compensation ceases.
8. Regulate the consequences of a breach. Provide for compensation for damage, repayment of compensation received and termination for a breach committed during employment.
9. Supplement the clause with related protections. A prohibition on soliciting employees and clients and an obligation to protect confidential information often provide more effective protection than the non-compete restriction itself.
10. Make the decision in time. Whenever employment ends, assess whether you still need the restriction and, if not, notify the employee of the waiver in writing in good time.

Conclusion

A non-compete clause is a valuable tool for protecting a business, but only if it is carefully tailored to the specific position. In addition, the choice and wording of sanctions in the employment contract directly affect whether they will be enforceable in practice, which is why they should be regulated with care. Three points are key:

• There must be a basis – the restriction is justified only for positions involving special knowledge, contacts or access to trade secrets.
• The content must be precise – activities, territory and duration are defined specifically and proportionately.
• Post-employment protection comes at a price – without agreed and adequate compensation, a post-employment restriction has no effect.

In other words, an overly broad or unsubstantiated restriction usually fails to provide protection precisely when the employer needs it most.