Forever Bound: When Non-Competes Go Too Far

A recent decision from Brazil’s Superior Court of Justice (STJ) sheds light on how non-compete clauses are treated under Brazilian law.

The case involved two former business partners in the children’s apparel industry. After going their separate ways, they agreed that one would sell clothes for kids up to size four, while the other would sell larger sizes. The agreement was simple but flawed: it didn’t specify how long this division of market would last.

When a dispute arose, the court declared the non-compete void. Why? Because it lacked a time limit. For example, it’s typical for non-competes to be valid for a predefined period of time, such as three or five years. But on appeal, the STJ took a different view. According to the court, the clause wasn’t void. Instead, it was voidable.

The distinction matters in this case. A judge can strike down a clause that’s void even without a request from one of the parties. A voidable clause, by contrast, is valid unless and until one party challenges it in court and obtains a favorable ruling.

In Brazil, non-compete clauses must be drafted carefully. They must be reasonable with clearly defined limitations. This is particularly true for the geographical scope and duration of a non-compete.

Ambiguity often invites litigation. And while Brazilian courts may give parties some leeway, they won’t fix what should have been addressed upfront.

Interested in how non-competes apply in the employment context? We invite you to read our blog article Enforcing Non-Competes in Brazil.