Non-compete clause in Portugal: is yours valid?

Did you sign a contract with a clause banning you from working for competitors after you leave? In most cases that clause does not bind you. The starting rule in Article 136(1) of the Portuguese Labour Code is nullity, and the law only makes an exception when three conditions are met at the same time (Article 136(2)). The one that almost always fails is the third: compensation.

The three conditions that make a non-compete valid

Article 136 has two layers. Paragraph 1 says that any clause in an employment contract or in a collective agreement that could restrict your freedom to work after the contract ends is null.

Paragraph 2 opens the exception. Restricting your activity for a maximum of two years after the contract ends is lawful on these conditions:

a) Written agreement. It must appear in a written agreement, in particular the employment contract or the termination agreement. A verbal promise or a stray email is not enough.

b) An activity that could harm the employer. The restriction must cover activity whose exercise could actually harm the company. A blanket clause banning you from the entire sector, whatever you do, is very hard to defend on this ground.

c) Compensation during the restricted period. You must be granted compensation for as long as the restriction lasts. The law adds that this compensation may be fairly reduced where the employer spent substantial sums on your professional training.

All three are cumulative. One failure sends the clause back to paragraph 1, which makes it null.

In current interpretation, note that the law also sets no geographic limit and no list of banned activities. Because subparagraph b) requires that the activity could harm the company, a clause with no boundary at all in area or duties is very exposed to being treated as excessive.

How long it can last

The rule is two years from the date the contract ends (Article 136(2)).

Paragraph 5 adds an exception. If you are assigned to an activity whose nature implies a special relationship of trust, or if you have access to information that is particularly sensitive in competitive terms, the restriction can last up to three years.

What this means in practice: a three year clause applied to an ordinary role is excessive on duration. A five year clause is always excessive.

How much they have to pay you

Here is the gap that causes most confusion: the law sets no amount and no percentage. Subparagraph c) of paragraph 2 only requires that compensation is granted during the restricted period.

Two practical consequences:

• The amount must be in the written agreement. If the clause does not say what they pay you, no compensation has been granted.
• The compensation may be fairly reduced if the employer spent substantial sums on your professional training (subparagraph c), final part). Reduced is not the same as removed.

Before you sign, put the numbers side by side: what you earn today, and what they offer to pay you for one or two years in which you cannot practise your profession in the field where you have experience.

If you were unfairly dismissed or left with just cause

This is the least known part of the article. Where a dismissal is declared unlawful, or where the worker terminates with just cause based on an unlawful act by the employer, the compensation under subparagraph c) is raised to the base salary at the date the contract ended. If the employer does not raise it, the employer cannot rely on the restriction (Article 136(3)).

The logic is simple. The company is the one that broke the contract, so paying you a token amount to sit out two years is no longer acceptable.

Paragraph 4 closes the mechanism. Amounts you earn in another professional activity started after the contract ended are deducted from that compensation, in current interpretation down to the point where the compensation reaches the figure that would result from subparagraph c) of paragraph 2, which acts as a floor.

If this is your situation, start with the guide to unfair dismissal compensation and, if you resigned yourself, the guide to constructive dismissal.

Minimum service agreement: do not mix them up

Article 137 covers something else, and the two are often confused.

Under a minimum service agreement, you undertake not to resign for a period of no more than three years, to compensate the company for substantial costs it incurred on your professional training (Article 137(1)).

The core difference:

• A non-compete looks at the period after you leave and limits where you can work.
• A minimum service agreement looks at the period before you leave and limits when you can go.

And you always have a way out. Paragraph 2 says you can release yourself from the agreement by paying the amount of those costs.

A minimum service agreement does not remove your right to leave with normal notice once the agreement has expired or once you pay the costs. Check the periods in the notice period guide and pick the right letter in the guide on which resignation letter to use.

Agreements between companies not to hire you

Article 138 is short and strong. Any agreement between employers that bans hiring a worker who works or has worked for them, or that requires payment of compensation if they do hire that worker, is null.

The law points specifically at clauses in temporary agency work contracts, but the rule covers agreements between employers in general.

In plain terms: if you learn that your former employer and the company that wants to hire you have an agreement blocking your admission, that agreement has no effect. And you are not the one breaching anything, because the agreement is not yours.

During the contract you already owe a duty of loyalty

Many people sign exclusivity clauses believing that without them they could do whatever they liked while employed. That is not the case.

Article 128(1)(f) already requires you to act loyally towards your employer, in particular:

• not trading on your own account or for others in competition with the employer;
• not disclosing information about the company's organisation, production methods or business.

This applies for as long as the contract lasts, with or without a written clause. Breaching the duty of loyalty can trigger a disciplinary procedure.

What subparagraph f) does not do is extend beyond the end of the contract. Once you leave, what governs is Article 136 and its three conditions.

If the company tries to enforce the clause

A sequence that works, in order:

1. Read the clause next to Article 136. Is it in writing? Does it define the activity? Does it state a compensation figure? How long does it run?
2. Keep the contract and any addenda. Also keep the termination agreement if you leave by mutual agreement. See the mutual agreement guide.
3. Reply in writing if the company threatens you with the clause. Say that you consider it null and set out why, point by point.
4. Do not assume you are blocked. If compensation is missing, paragraph 1 has already settled the question in your favour.
5. If compensation was promised and not paid, it is a debt owed to you. The tools are the same as for late wages.
6. Check what the company gave you in writing when you were hired. Accessory clauses form part of the mandatory information about the employment relationship: see the transparent working conditions guide.

If your real question is what you are owed on the way out, see final pay at the end of a contract.

Are you the employer? A badly drafted non-compete protects nothing, because it falls entirely under the nullity rule in Article 136(1). If you genuinely need to protect sensitive information, write four elements into the agreement: the specific activity restricted, its scope, a duration within the 2 or 3 year limits, and the monthly compensation figure. Budget that compensation before you propose it, because it is a real cost for the whole restricted period, and remember that it rises to base salary where a dismissal is declared unlawful. For training costs, the right instrument is the minimum service agreement in Article 137, with the amount written down. And do not try to solve this with agreements between companies, which Article 138 strikes down as null. The rest of the hiring paperwork is in the guide to hiring an employee in Portugal and in the employer obligations checklist.

This guide is general information and does not replace legal advice for your specific case. Questions? ola@despacho.pt