Non-compete clause in a B2B contract

Freedom of non-competition in a B2B contract

There is virtually no obstacle to including a non-compete in a cooperation agreement (B2B contract) in the form of a clause (paragraph of the contract), as an annex to the B2B contract or to conclude a separate non-compete agreement. However, in order for a non-compete to genuinely protect the principal and not just appear on paper, there are a number of important points to bear in mind, which we discuss below.

The scope of a non-compete in a B2B contract should be reasonable and not unduly restrict the contractor. For example: if we run an advertising agency specialising in advertising for the cosmetics industry and we write into our B2B contract with our graphic designer a prohibition on holding any position in any marketing company, it may turn out that the provision will be too broad and as such – even invalid. After all, our graphic designer could work with another advertising agency as a sales representative (rather than as a graphic designer). In such a case, it would be difficult to defend that our graphic designer’s work constitutes a competitive activity with our company.

Going further: the same graphic designer from an advertising agency working in the cosmetics sector could start providing graphic design services to another advertising agency that works in advertising for the food sector. Again, the graphic designer could defend himself by refuting the sense of a broad non-compete. His activity for the second agency (in the food sector), although identical in terms of the type of services he provides (graphic design services), would very likely not affect the activity or position of the first agency (in the cosmetics sector).

In a non-compete in a B2B contract, it is therefore best to clearly describe what tasks the non-compete concerns (example from one of the judgments: ‘service, production, sale of cutting and graphic plotters and software for them, as well as consumables”) and what is meant by a company competing with ours.

Duration of a non-compete in a B2B contract – how long can a non-compete last?

A non-compete can operate during the term of the B2B contract, but also afterwards (after the termination of the contract). It is important not to paralyse a colleague’s career plans many years in advance, unless it is justified. For example, if the associate had access to the company’s innovative, unique data in an emerging field, adopting a non-compete during the B2B contract and additionally – for 2 to 3 years after the termination of the associate – would be justified. But if he or she performed average, common services for the company, excluding him or her from the labour market for 2 years after the end of the contract is overkill. In such a case, if at all, a non-compete for 6 months will probably be sufficient.

Does a Non-Compete Clause in a B2B Contract Only Cover Employment with a Competing Company?

Competitive activity is not limited to entering into cooperation with a competing company. It also includes independently running a competing business or, for example, sitting on the management board of such a company. Therefore, it is worth specifying in a B2B agreement what kinds of activities are considered prohibited competitive conduct (for example: operating a sole proprietorship in a competing industry, working for a competing company under an employment or civil law contract, taking a position on the board of a competing entity, etc.).

A specific form of non-compete clause in B2B contracts is a prohibition on working with or cooperating with the company’s existing clients, bypassing the original contracting company. This is not a non-compete in the strict sense (as it does not concern competitors, but rather the client base of the original contractor). However, it is common (and permissible) for such a clause to be included within broader non-compete provisions in B2B contracts.

Non-Compete After Termination of a B2B Contract – Is the Contractor Entitled to Compensation?

If the non-compete applies only during the term of the B2B agreement, it is generally not accompanied by any additional financial compensation.

However, if the non-compete extends to the period after the contract ends, theoretically, the contractor is not automatically entitled to compensation for refraining from competitive activity. Nevertheless, there are situations where the absence of compensation may violate principles of good faith and fair dealing. This might be the case when the non-compete effectively excludes the contractor from the market, for instance, due to a highly specialized skill set and very limited employment opportunities outside the competitive sector. In such cases, the contract should absolutely include a provision for compensation.

If compensation for refraining from competitive activity is agreed upon, it is reasonably safe to follow the model from the Labor Code concerning employee non-compete clauses — namely, the former contractor should receive approximately 25% of their B2B contract remuneration per month. The compensation can be paid in installments (e.g. monthly) or as a lump sum at the end of the non-compete period.

Waiving the Non-Compete Clause in a B2B Contract – Is It Allowed?

A non-compete clause is simply a contractual provision, so it can be waived by mutual agreement between the parties.

Additionally, if the clause is no longer relevant for the client, they may release the contractor from it. However, to avoid any ambiguity, it is best to explicitly allow for this possibility in the B2B contract – particularly if compensation for refraining from competitive activity has been granted. A unilateral withdrawal of such compensation (not foreseen in the contract) may be considered improper, especially if the contractor has factored this payment into their financial planning.

Contractual Penalty for Breaching a Non-Compete Clause in a B2B Agreement

Including a contractual penalty for breaching a non-compete clause is a very common practice in B2B agreements. It enables the client to seek payment without having to prove the actual amount of damage incurred.

In practice, penalties for violating a non-compete clause in B2B contracts range from several thousand to several hundred thousand PLN per breach. They are often also stipulated in foreign currencies (e.g. EUR). The penalty amount usually depends on the contractor’s remuneration and the importance of their work, skills, and knowledge to the company. In other words: the more irreplaceable the contractor is to the company (and simultaneously, the more valuable they are to the competition), the higher the penalty for breaching the non-compete clause.

More on contractual penalties in B2B agreements – HERE.

Nowadays, information has exceptional economic value. That’s why if you’re entering into a collaboration that requires sharing a specific operational model or other confidential information, it’s important to protect against its duplication or misuse by contractors working under B2B agreements.

Finally, whether a non-compete clause is too broad or improperly defined always depends on context. All examples mentioned above are just hypothetical. Each case of a non-compete breach – or the inclusion of a specific non-compete provision in a B2B contract – must be assessed individually, based on the actual circumstances.