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Prohibition of competition between employer and employee



Institute of competition prohibition between employer and employee

According to the institute of prohibition of competition between employer and employee, the latter is not allowed to perform for his or for someone else’s account the same activity as performed by the employer as long as he or she is employed by the employer.   

Competition prohibition may be legal and contractual.

In the Federation of BiH, competition prohibition is governed by the FBiH Labour Law, Article 85 of which clearly prescribes as follows:
“An employee can, only with a prior approval of the employer, enter into business arrangements, for his own or somebody else’s account, and perform tasks falling within the activity of the employer.”

This means that employees are allowed to enter into business arrangements for their own or somebody else’s account, and perform tasks falling within the activity of the employer only with an explicit approval of the employer. The meaning of this provision is unambiguous. It protects the employer from unfair competition, as otherwise, a person employed with the employer would have an opportunity to earn extra profit to the detriment of the employer, thus entering into competition with the employer and afflicting the employer’s business.

> EXAMPLE: M.B. is employed by the Poslovanje d.o.o., a company active in production and sale of catering uniforms. M.B., who is a tailor by profession, sews in his free time and using his own sewing machine catering uniforms for the catering facilities he entered into business with after having found them on the Internet. The M.B.’s superior, D.P. is entirely unaware of this activity of his subordinate, and M.B. did not inform him thereof.  
In this example, the employee M.B. entered into sewing business on his behalf, meaning he keeps the profits for himself only. By this unfair act he inflicts a direct damage onto the company in which he works and earns his regular salary.


Contractual competition prohibition 

In addition to legal prohibition of competition, an employer and an employee may conclude a contract (as a rule, every employment contract includes this clause) stipulating that the employee, for a specific period of time following the lapse of employment contract, however no longer than two years, may not be employed with a competitor of the employer, and that he may not, either for his own account or for the account of a third party, enter into business arrangements and perform jobs by which he competes with the employer. 

However, the contractual prohibition of competition shall put an employee under an obligation only if the employer has committed under the contract to the payment of compensation to the employee during the period of the prohibition, amounting to at least half of the average salary paid to the employee in the period of three months preceding the termination of employment contract (Article 87 of the FBiH Labour Law).

The contractual prohibition of competition shall put an employee under an obligation only if the employer has committed under the contract to the payment of compensation to the employee during the period of the prohibition

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