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ABSTRACT This article examines the legal issues arising in case of breach of non-compete agreements concluded between employee and employer, particularly within the scope of the “concurrence of rights” phenomenon. Non-compete agreements are regulations aimed at preventing the employee from directly competing with the employer for a certain period and within a geographical area after the termination of the employment relationship, and are designed to protect the employer’s trade secrets. The study emphasizes that in case an employee breaches the obligation stipulated in the contract, this conduct may constitute both breach of contract and tort simultaneously. In such a situation, according to the general acceptance in Turkish law, it is established that contractual liability provisions shall be applied prior to tort provisions. Consequently, the employer must primarily assert claims for penal clauses or compensation stipulated in the contract, while the possibility of relying on unfair competition provisions remains secondary. The article elaborates on the legal justifications of this priority relationship in light of the Turkish Code of Obligations and relevant Court of Cassation precedents, and draws attention to practical advantages such as ease of proof and swift legal protection that contract-based sanctions provide to employers. In conclusion, the priority of contractual regulations in non-compete breaches constitutes the most effective and fair solution path both in terms of legal stability and procedural economy.
Keywords: Non-Compete, Employee, Employer, Non-Compete Agreement, Concurrence of Rights, Tort, Breach of Contract, Penal Clause, Compensation.
INTRODUCTION In Turkish labor law legislation, non-compete is a critical provision introduced to safeguard the employer’s trade secrets and market advantage. The fundamental purpose of this regulation is to prevent the employee from becoming a direct competitor in the sector where the former employer operates, within a certain period and geographical limits after the termination of the employment relationship. The aforementioned restrictions may be regulated either as a clause of the employment contract or through a separate non-compete agreement signed between the parties. However, in order not to unjustly obstruct the employee’s freedom to earn a living and practice their profession, the legal system has tied the content of these agreements to strict rules in terms of reasonable time, place, and subject matter. In case the employee breaches the obligations specified in this agreement, this conduct will simultaneously constitute a contract breach (such as penal clause or compensation). In this situation, referred to as “concurrence of rights” in legal doctrine, if an act carries both the nature of breach of contract and tort, according to the generally accepted view, contractual liability provisions take precedence. Therefore, even if an employee’s act theoretically violates the unfair competition rules in the Turkish Commercial Code No. 6102, if it simultaneously breaches a signed non-compete agreement, the employer will be required to primarily assert rights arising from this contract. Recourse to tort provisions will remain secondary. The focal point of this study is which of the contractual and tort-based litigation rights available to the employer should be used primarily in the face of breach of a non-compete agreement. The examination aims to reveal in detail the legal justifications regarding why and how the allegation of breach of contract takes precedence over the allegation of unfair competition.
Non-Compete Agreements Between Employee and Employer
Non-compete means that persons operating in the same field cannot enter into competition with each other unlawfully, and that certain persons are prohibited from competing with each other.¹ If it is desired that the employee’s obligation not to compete, in other words, the prohibition of competition with the employer, continues after the employment contract terminates, the parties must agree on this separately and explicitly through a contract. This agreement may be made through a separate contract or through a special clause to be included in the existing employment contract.² It is not a condition for the parties to draft a separate contract clause or sign an independent non-compete agreement for this legal obligation to arise. Because the legislator has automatically accepted the obligation not to compete while the service relationship continues as a natural extension and implicit element of the employee’s duty of loyalty. Therefore, this obligation is an objective liability arising from the nature of the legal relationship, independent of the parties’ wills. A non-compete agreement is a contract containing the matter that the employee, due to recognizing the employer’s customers or learning trade secrets while the employment contract continues, shall not engage in any activity that will constitute competition with the employer within a certain field of activity, in a certain geographical region, and within a certain time period after the employment relationship ends.³ The fundamental reason for the existence of the non-compete regulation is to prevent the employee from using the customer portfolio, trade secrets, operational strategies, and similar important knowledge acquired during their duty for their own benefit or for the benefit of a third party after the termination of the employment contract. Thus, it is prevented that the market position and commercial reputation that the employer created with labor and resource investment are damaged by being transformed into an unfair advantage by a former employee.
The Term Concurrence of Rights
This concept, expressed in legal literature as “concurrence/competition of rights” or “concurrence of rights” (concurrence of rights), refers to the situation where a single legal result asserted by the plaintiff in court (for example, a compensation claim) can be supported by multiple and different legal grounds related to the same event. If the realization of the aforementioned claim can be grounded on different legal instruments such as both contract breach and tort, this is referred to as concurrence of rights. Article 60 of the Turkish Code of Obligations regulates the concurrence of causes under the heading of plurality of liability causes. Although concurrence of rights is regulated in substantive law, it also concerns procedural law.⁴ According to the regulation, if a person’s liability can be based on multiple causes, the judge decides according to the liability cause that provides the injured party with the best remedy opportunity, unless the injured party requests otherwise or the law provides otherwise.⁵ In brief, if a material fact can be asserted on the basis of multiple legal causes, concurrence of rights occurs here.⁶ The principle of “concurrence of rights” (concurrence of claims) in legal theory and practice is a doctrine frequently encountered and of importance especially in the fields of intellectual property law, law of obligations, and labor law. Although this principle provides flexibility to the plaintiff in seeking legal protection, it is subject to certain limitations due to the principles of justice, predictability, and stability that form the foundation of the legal system. Elements such as the prohibition of double compensation, procedural economy, the rule of good faith, and the legal nature of the act prevent the unlimited use of this principle. The characteristics of the concrete dispute play a decisive role in determining which legal path should be followed or whether the paths can be used together. The injured party has the opportunity to evaluate the different legal causes available before them (for example, a claim arising from contract and simultaneously a lawsuit based on tort) to remedy a damage arising from the same factual situation and to choose the most suitable one among them. However, this strategic choice produces an important consequence: in cases of elective lawsuits, once the plaintiff has initiated a certain procedure and entered this path, they lose the right to make the same claim based on the other legal cause. In particular, the finalization of a final decision given by the court means that the alternative legal path is also exhausted.
Consequences of Non-Compete Breach
In the text of the Turkish Code of Obligations No. 6098, the legal consequences of conduct contrary to non-compete are explicitly regulated in the first paragraph of Article 446. The aforementioned provision sets forth in detail the authorities granted to the employer and the sanctions that the breach will give rise to in case of breach of a valid non-compete agreement between the parties. The law includes the following provisions: “ARTICLE 446- An employee who acts contrary to the non-compete is obliged to compensate all damages suffered by the employer as a result thereof. If the conduct contrary to the prohibition is linked to a penal clause and there is no contrary provision in the contract, the employee may be released from the obligation regarding the non-compete by paying the foreseen amount; however, the employee is obliged to compensate the damage exceeding this amount. Apart from the payment of the penal clause and potential additional damages, the employer may also request the termination of the conduct contrary to the prohibition, provided that it is explicitly reserved in writing in the contract and if the importance of the interests violated or threatened and the employee’s conduct justify it.”
• Consequences for the Employee
During the determination of non-compete regulations, the negative effects that this prohibition may create on the employee must be taken into consideration. Because non-compete can seriously restrict the employee’s freedom to work, the right to practice their profession, and consequently the opportunity to secure their livelihood. These prohibitions, which keep the employee away from operating in a certain geographical region and sector for a long period, may constitute a practical obstacle in front of finding new employment opportunities. Therefore, the employee’s interests must also be taken into consideration in determining the scope and duration of the non-compete, otherwise such regulations may carry the risk of conflicting with fundamental rights secured in international conventions. Indeed, excessively broad and disproportionate non-compete prohibitions may constitute a violation of both Article 4 of the European Convention on Human Rights regulating the prohibition of forced labor and the provisions regarding freedom of work recognized in the Covenant on Civil and Political Rights, and may leave the employee in an economically difficult situation. In case the employee acts contrary to the non-compete, the employer may request the penal clause agreed in the contract. According to Article 180 of the Turkish Code of Obligations: “The agreed penalty must be performed even if the creditor has suffered no damage.”⁷ According to the relevant article provision, for the employer to request a penal clause, it is not necessary to prove the existence of concrete damage arising from the non-compete breach. The employer has the right to request payment of the previously agreed penal clause by only documenting that the employee breached their obligation and violated the prohibitions foreseen in the contract. Therefore, according to the relevant regulation of the Turkish Code of Obligations, the breach itself is deemed sufficient for the collection of the penal clause, and the condition of showing additional damage is not sought. In practice, adding a penal clause to non-compete agreements by employers is a commonly preferred security mechanism because it provides a swift and effective legal path in case of breach. This method ensures that the consequences of breach of contract are borne immediately without the employer entering into long and complex damage calculation and proof processes. Because the penal clause enables the request of the agreed penalty amount without the need to prove damage and the amount of damage.⁸ The difficulty for employers in proving loss of profit, and the fact that the evidence necessary for determining the causal link between breach and damage is in the possession of the new employer, constitutes a significant problem at the point of proof.⁹ However, as mentioned, for a penal clause to be requested, it is sufficient for the employer to prove that the non-compete was breached.¹⁰
• Consequences for the Employer
The employer’s rights to continue their legitimate commercial activities, protect their economic interests, and keep their trade secrets confidential are under fundamental legal guarantees. Non-compete regulations essentially arise from the necessity of securing these legitimate rights of the employer. The fundamental purposes of these regulations are: to prevent the employee from entering into unfair competition by using confidential information or the employer’s commercial advantages acquired during the employment relationship, and to ensure the protection of the enterprise’s market share and reputation. The employee sharing trade secrets learned by virtue of their duty with other employers, engaging in an enterprise that directly competes with the employer’s field of activity, or working at a competing organization even outside working hours, carries the meaning of breaching the loyalty obligation arising from the employment contract. Such behaviors constitute a violation not only of the contractual relationship but also of the rule of good faith, which is among the general principles of the legal order. Furthermore, it is not a condition that the employee’s conduct contrary to the non-compete leads to concrete and proven damage. The existence of even a potential risk or a threat that will damage the employer’s interests is deemed sufficient for the breach of the obligation not to compete. An employee who breaches the non-compete provision is legally liable to compensate all damages to which the employer is exposed due to this breach, pursuant to the first paragraph of Article 446 of the Turkish Code of Obligations. In the calculation regarding this compensation obligation arising from the contract, the general compensation provisions of the Code of Obligations in case of breach of contracts are taken as basis. Within this scope, as well as the actual damage suffered by the employer, it is possible to evaluate lost profit for deterrent purposes (for example, lost earnings arising from customer loss) within the scope of compensation. The burden of proving the damage and the amount of damage belongs to the employer.¹¹ However, the employer is not obliged to prove the employee’s fault. The employee may be released from liability by proving their absence of fault pursuant to Article 112 of the Turkish Code of Obligations.¹² The damage suffered by the employer is positive damage expressing the difference between the current situation of their assets and the situation their assets would present if the non-compete had not been breached.¹³ This may also arise in the form of the employer’s actual damage and loss of profit. It is argued that if the breach that caused the employer to suffer damage simultaneously constitutes unfair competition by the new employer with whom the employee works, the new employer should also be held jointly liable for the damage occurring.¹⁴
CONCLUSION
Non-compete agreements are legal regulations foreseen to protect the balance of interests between employee and employer, aiming to prevent the employee from misusing the trade secrets and customer relations acquired from the employer. In case of breach of such agreements, the liability that will arise must be subject to breach of contract provisions within the framework of the explicit provisions of the Turkish Code of Obligations and the dominant approach in doctrine. Indeed, when the allegation that the same act constitutes both breach of contract and tort comes to the fore, the legal order brings the “concurrence of rights” principle into play. The concurrence of rights principle enables the injured party to choose the most suitable remedy path in situations where an act may constitute grounds for multiple legal causes. However, if a contractual relationship exists, the special provisions of this relationship are applied prior to general tort rules. Therefore, even if the employee’s conduct contrary to the non-compete is of a nature that may also be subject to unfair competition provisions, as long as the same act constitutes a breach of contract, the path to which the employer may resort will primarily be the contractual liability provisions. This approach is appropriate both in terms of legal security and procedural economy principles. Because the application of breach of contract provisions ensures the protection of special arrangements between the parties; furthermore, it enables the employer’s damage to be compensated in a clearer and more predictable manner through penal clause or compensation provisions. An acceptance in the opposite direction will result in imposing double liability on the employee due to the same act and unnecessarily bringing tort provisions into play. In conclusion, in case of breach of the non-compete agreement, the employer must primarily rely on breach of contract provisions. Even if the employee’s act is of a nature that may constitute unfair competition within the meaning of the Turkish Commercial Code, tort provisions cannot be resorted to because this act simultaneously breaches a signed non-compete agreement. This approach, which is generally accepted in doctrine, together with the correct application of the concurrence of rights principle, offers the most suitable solution for protecting the balance of interests between employee and employer.
¹ Fatih UŞAN, “Non-Compete Agreement in Labor Law”, Mercek Journal Issue:38, April 2005, p. 97.
² Eda MANAV, “Validity Conditions of Non-Compete Agreement in Labor Law”, Turkish Bar Associations Journal Issue:87, 2010, p. 323.
³ UŞAN, op.cit., p.100
⁴ Ahmet Cahit İYİLİKLİ, “Sacrificing the Correct Decision to Insufficient Reasoning in the Context of Concurrence of Rights”, Turkey Justice Academy Journal Issue:12, October 2021, p. 253.
⁵ General Assembly of Civil Chambers’ decision dated 21.03.2019, No. 2017/13-778 Basis and 2019/329 Decision.
⁶ Ömer Faruk KARACABEY, “Concurrence of Rights”, Ankara Bar Journal Issue:6, 1980, p.666-685.
⁷ Nuray KOVANCI, “Non-Compete Agreement in Turkish Labor Law”, Turkey Justice Academy Journal Issue:31, July 2017, p. 789.
⁸ Gökhan ÇAYAN, “The Effect of the Provisions of the Turkish Code of Obligations No. 6098 Regarding Service Contract on the Labor Law No. 4857”, Legal Labor Law and Social Security Law Journal Issue:39, 2013, p.98.
⁹ Hülya ATLAN KAZAN, “Non-Compete Agreement in Employment Relationship”, Legal Labor Law and Social Security Law Journal Issue: 36, 2012, p.178.
¹⁰ Sarper SÜZEK, “Employee’s Obligation Not to Compete Within the Framework of the New Turkish Code of Obligations”, Istanbul University Law Faculty Review Issue:2, 2014, p.463
¹¹ Gülsevil ALPAGUT, “Provisions of the Turkish Code of Obligations Regarding Transfer of Service Contract, Termination, Non-Compete, Penal Clause and Release Document”, Legal Labor Law and Social Security Law Journal Issue: 31, 2011, p. 952.
¹² M. Polat SOYER, Non-Compete Agreement, Dokuz Eylül University Faculty of Law, Ankara 1994, p.77.
¹³ ATLAN KAZAN, op.cit., p.177.
¹⁴ SOYER, op.cit. p.78.