Non-competition agreement during and after work

Service

In order to secure their interests, employers sign the so-called non-competition agreements. They can be concluded with the person performing the work, as well as after the termination of the employment relationship. As practice shows, entrepreneurs often have a problem with how a non-competition agreement should be accounted for.

Non-competition agreement during and after work

A non-competition agreement during the employment relationship can be signed with any employee who agrees. Performing it does not have to be paid. Its purpose is to protect the interests of the employer against disloyal actions of employees for the duration of the employment relationship or for the period of not taking up any activity competitive to the activity of his employer. On its basis, the employee may not perform work under an employment relationship or on any other basis (e.g. under a mandate contract or a specific task contract) for an entity competitive to the employer with whom he concluded a non-competition agreement.

Competitive activity is considered to be when:

  • its subject coincides, at least in part, with the subject of the employer's activity (the services provided under it are addressed to the same group of recipients, there is a rivalry between the activities of two entities) and

  • threatens or violates the interests of the employer

Post-employment non-competition agreements can only be signed with an employee who has access to information that is particularly important to the company. Limiting the possibility of employing an employee in competing companies is in this case associated with financial compensation. The contract specifies the duration of the non-competition clause and the amount of compensation due to the employee from the employer. The compensation may not be lower than 25% of the remuneration received by the employee before the termination of the employment relationship for the period corresponding to the duration of the non-competition clause. In the event of a dispute, the labor court rules for compensation. It should be emphasized that the possible compensation for an employee due to the conclusion of a non-competition agreement during employment may be agreed by the parties at any level, so it may be lower than 25% of the remuneration.

Prohibition of competition under the PIT Act

Pursuant to Art. 12 of the PIT Act, income from a service relationship, employment relationship, homework and a cooperative employment relationship is considered to be all types of cash payments and cash value in kind or their equivalents, regardless of the source of financing these payments and benefits, in particular basic remuneration, remuneration for overtime, various types of allowances, awards, equivalents for unused leave and any other amounts, regardless of whether their amount has been determined in advance, and in addition, cash benefits paid for the employee, as well as the value of other unpaid benefits or partially paid benefits .

However, in Art. 21 of the PIT Act lists the income that is exempt from income tax. And so, according to Art. 21 sec. 1 point 3 lit. d of the PIT Act, compensation is free from income tax, if its amount or the rules of determining it result directly from the provisions of separate acts or executive regulations issued on the basis of these acts, with the exception of compensation granted on the basis of the provisions on non-competition.

Therefore, it should be considered that the compensation paid under the concluded non-competition agreement is a benefit resulting from the employment relationship between the parties and should be classified as such. As a consequence, the payment received on the basis of such an agreement will be subject to income tax on general principles.

Compensation after termination of employment

The payment of non-competition compensation is the result of an employment relationship existing between the company and the employee, it should be assumed that the amounts paid will constitute income from the employment relationship for the former employee. An important argument in favor of such a qualification of this type of benefits is the fact that the principles of concluding non-competition agreements are regulated by the provisions of the Labor Code.

Therefore, it should be considered that the compensation paid under the concluded non-competition agreement is a benefit resulting from the employment relationship between the parties and should be classified as such. Consequently, the payment received on the basis of such a contract should be classified as income from the employment relationship also in a situation where its payment takes place after the termination of employment.

The tax authorities also confirm the above comments. For example, the Director of the Tax Chamber in Katowice, in letter No. IBPBII / 2 / 415-1000 / 09 / NG of January 7, 2010, indicates:

"(...) The compensation in question should therefore be classified as income from the employment relationship referred to in Article 12 (1) of the Personal Income Tax Act, because its payment is conditional upon the employment relationship between the parties. , income from the employment relationship is considered to be all kinds of cash payments and the monetary value of benefits in kind or their equivalents, regardless of the source of financing these payments and benefits, in particular: basic salaries, remuneration for overtime, various types of bonuses, awards, equivalents for unused leave and all other amounts, regardless of whether their amount has been determined in advance, and in addition, cash benefits paid for the employee, as well as the value of other unpaid benefits or partially paid benefits (...) ".

When calculating the payment of wages, the so-called employee tax-deductible costs, and unless the employee cancels his position submitted to PIT-2 regarding the deduction of the tax relief, it should also be taken into account. This position is confirmed by the tax authorities, for example in the letter of the Head of the Second Mazowiecki Tax Office in Warsaw, No. 1472 / DPC / 415-29 / 06 / PK of April 27, 2004, we can read:

"(...) The company correctly decided that it is necessary to calculate and collect an advance on personal income tax, taking into account tax deductible costs. The calculated advance payment for income tax may be reduced by the payer by the amount constituting 1/12 of the amount reducing the tax (called by the Company a tax relief), specified in the first range of the applicable tax scale, only if the taxpayer submitted an appropriate statement and did not notify the Company of changes in the facts resulting from this statements.

The obligation to take into account the tax deductible costs referred to in article 1. 22 sec. 2 of the Personal Income Tax Act, it follows that the regulations do not make their calculation dependent on the fact of performing work at the time of earning income, but on the very fact of obtaining income from the source of the employment relationship.And in the case of the amount reducing the tax, its inclusion is conditional only on the taxpayer's obtaining income from the employment relationship and submitting an appropriate declaration. If the former employee has not revoked this statement, it is presumed that the data resulting from this statement has not changed (...) ”.