Why non-compete agreements require attention in SMEs
When a key employee leaves the company, the risk that they take clients, know-how, or business contacts to a competitor is real — especially in SMEs, where personal relationships weigh heavily on revenue. The post-contractual non-compete agreement (Art. 340–340c CO) allows this possibility to be limited temporarily, but Swiss law imposes strict requirements: a written clause, access to clientele or trade secrets, proportionate limits, and — if you want a remunerated agreement — a waiting-period compensation agreed in writing.
Unlike other European legal systems, in Switzerland compensation is not mandated by law: an agreement can be valid even without economic consideration. However, a poorly drafted agreement is void or may be reduced by the court; if remunerated, it becomes a bilateral contract with payment obligations that affect personnel costs, liquidity, and year-end closing. For business owners and finance managers, the challenge is not only legal: accounting must also be consistent with Swiss accounting standards (Swiss GAAP FER) and tax deadlines.
This guide explains when a non-compete agreement is valid, how to calculate waiting-period compensation, which situations cause it to lapse, and how to record it correctly in the accounts — with references updated to federal law in force in 2026.
Validity requirements under the Code of Obligations
Art. 340 and Art. 340a CO make the validity of the agreement subject to cumulative conditions. If even one is missing, the clause is ineffective or may be reduced:
| Requirement | Content | Consequence if absent |
|---|---|---|
| Written form | Agreement signed by the employee — as a rule in the employment contract or in a separate agreement (Art. 340 para. 1 CO) | Absolute nullity |
| Access to clientele or secrets | The employment relationship must have allowed the employee to know the clientele or manufacturing and business secrets whose use could cause considerable damage to the employer (Art. 340 para. 2 CO) | Nullity of the agreement |
| Time limitation | As a rule, up to 3 years from the end of the employment relationship; beyond that term only in special circumstances (Art. 340a para. 1 CO) | Reduction or nullity of the excess portion |
| Territorial and substantive limitation | The geographic scope and prohibited activities must be defined precisely and be proportionate (Art. 340a para. 1 CO) | Judicial reduction or nullity |
The agreement may prohibit only activities that concretely jeopardise the employer's interests — typically direct competition for the same clientele or use of trade secrets acquired during the employment relationship. A generic formulation («do not work in sector X anywhere in Switzerland») is easily challengeable and may be reduced by the court under Art. 340a para. 2 CO, which also takes into account any counter-performance by the employer.
Waiting-period compensation: calculation and payment methods
In Switzerland, waiting-period compensation (Karenzentschädigung) is not a validity requirement imposed by law, but a contractual counter-performance that the parties may freely agree. If provided for, the agreement takes on a bilateral nature: federal case law (BGE 78 II 230; TF 4A_5/2025) treats the compensation as consideration for refraining from competition, not as damages. In contractual practice, compensation equal to at least 50% of the last monthly salary for each month of restriction is often considered «adequate» — unless the clause is particularly restrictive, in which case up to 100% may be required. The absence of compensation does not invalidate the agreement, but makes judicial reduction more likely.
During the employment relationship
If compensation is paid during employment (a common model in SMEs), it forms part of salary and counts towards the OASI/DI/IC, BVG/LPP, and UVG/LAA contribution base. It should be shown separately on the payslip to avoid disputes in the event of revocation of the agreement.
Example: salary CHF 7'000/month, 24-month post-contractual agreement, monthly compensation of CHF 3'500 during the employment relationship. Additional annual cost: CHF 42'000, plus social charges.
After termination of the employment relationship
Compensation may be paid in monthly instalments for the entire duration of the restriction. In this case, the company must plan for the financial commitment in the budget and, if the agreement spans more than one accounting period, assess the need for provisions.
Example: same employee, post-contractual compensation of CHF 3'500/month for 24 months. Total commitment: CHF 84'000. If the employee leaves mid-year with a valid agreement, future payments affect the following accounting period.
The agreement may provide for a single lump-sum payment upon termination, provided the amount is proportionate to the duration and intensity of the restriction. In any case, document the link between compensation and restrictions in the contract or in a signed annex.
When the agreement lapses or may be revoked
An agreement valid at the time of signing may lose effect for reasons provided by law. The most relevant situations for SMEs:
Termination without just cause by the employer
If the company dismisses the employee without the employee having given just cause (Art. 340c para. 2 CO), the agreement lapses automatically. Compensation already paid during the employment relationship is not recoverable, unless otherwise agreed — but post-contractual instalments need no longer be paid.
Resignation due to fault of the employer
In this case too, the agreement lapses (Art. 340c para. 2 CO). Always document the reasons for separation: in the event of a dispute, the employer must prove that termination does not fall within these scenarios.
Termination due to lack of employer interest (Art. 340c para. 1 CO)
The agreement ceases when it is proven that the employer no longer has a considerable interest in maintaining it — for example due to a change in business activity or the employee's position.
Revocation or waiver by the employer
According to federal case law (BGE 78 II 230; TF 4A_5/2025), the employer may not unilaterally revoke a remunerated agreement or suspend waiting-period compensation, unless the contract expressly provides for such a right and the related procedures. In the absence of a contractual clause, revocation requires the agreement of both parties. Art. 340b CO governs the consequences of breach of the agreement (damages and, if provided for, contractual penalty).
Change in working conditions
A substantial worsening of working conditions may cause the agreement to lapse if the employee terminates for just cause attributable to the employer (Art. 340c para. 2 CO). Avoid unilaterally changing salary, role, or place of work without reviewing the non-compete clause with legal advice.
Accounting in SMEs: entries and provisions
Non-compete compensation is a personnel cost. Recording depends on the timing of payment and the duration of the restriction:
| Scenario | Typical account (Swiss GAAP FER) | Recording |
|---|---|---|
| Monthly compensation during employment | 5800 Salaries / 5700 Social charges | Monthly recording together with salary; show as a separate line item in the income statement for traceability |
| Post-contractual payment in instalments | 5800 Salaries (or dedicated sub-account) | Charge at time of payment; if the amount is significant, create an analytical account per employee |
| Lump-sum compensation upon termination | 5800 Salaries / 2300 Liabilities vs. cash | Full amount charged to the period of payment; tax and social security treatment according to rules applicable at the time of disbursement |
| Provision for multi-year agreement | 5800 Salaries / 2300 Liability for compensation | If the agreement is certain and the amount estimable, provision at year-end closing under the matching principle (Art. 958b CO) |
Tax and social security implications
- Non-compete compensation paid to the employee is taxable income (withholding tax or ordinary tax return).
- If paid during employment, OASI/DI/IC, BVG/LPP, and UVG/LAA contributions are calculated on the amount. If paid after termination, it generally remains subject to OASI/DI/IC contributions (and ALV, if applicable) as a benefit at the end of the employment relationship; BVG/LPP does not usually apply to post-contractual payments, unless the pension regulations provide otherwise.
- For the company, the compensation is deductible from taxable income if related to business activity and documented contractually.
- In the event of agreed revocation or early termination of the agreement, any residual payments must be recorded in the period of payment with a dedicated description.
Operational checklist for business owners and fiduciaries
Before including a non-compete agreement in an employment contract, check the following points:
- Assess real need: for employees without direct contact with clients or trade secrets, the agreement is often excessive and invalid.
- Define concrete limits: duration (as a rule max. 3 years), geographic area (e.g. canton of Ticino, not «Switzerland»), prohibited activities (e.g. «tax consulting for the same clients»).
- Set compensation in writing: if remunerated, specify percentage of salary, payment method and timing, as well as any contractual right of revocation. Calculate the impact on personnel costs for at least 3 years.
- Configure the payslip: separate line item «non-compete compensation» to simplify reporting and audit.
- Plan accounting: if the post-contractual agreement exceeds CHF 20'000, consider provisions at year-end closing and document the calculation basis.
- Review upon termination: check whether the agreement has lapsed (dismissal, resignation, revocation) and update budget, liabilities, and payment schedules.
- Retain documentation: signed contract, compensation calculation, revocations and payments — minimum 10 years for tax and audit purposes.
Conclusion: legal protection and integrated accounting management
The non-compete agreement is a useful tool for Swiss SMEs that want to protect clients and know-how, but it is not a simple paragraph to add to the contract. Without written form, access to clientele or secrets, and proportionate limits, the clause will not hold — and the company discovers its ineffectiveness only at the time of conflict. Waiting-period compensation is not mandated by law, but remains strongly recommended to make the agreement fair and enforceable.
From an accounting perspective, the compensation is a personnel cost that must be planned, tracked, and — if necessary — provided for. Integrating agreement management into accounting software, with dedicated line items and a schedule of post-contractual payments, reduces closing errors and simplifies the work of the auditor and tax advisor.
For clauses covering critical roles or significant amounts, a preventive review by an employment lawyer and your fiduciary remains the safest choice — especially when the agreement extends beyond one accounting period.