IAS 19: non-compete upon termination of an employment contract

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Paddy_P
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Joined: 27 Feb 2023, 20:38

IAS 19: non-compete upon termination of an employment contract

Post by Paddy_P »

Dear Community,

Upon termination of executive positions, contracts often include non-compete arrangements for the 12 month following the termination. During this period, the former employee is not allowed to work for a competitor in the same industry. In exchange, he still monthly salary payments.
In case that the person is employed by another company outside the industry, the new salary is deducted from the monthly payments (if new salary is smaller than the old one, he is still entitled to receive the difference).

How is this treated under IFRS. Is it a short-term employee benefit, termination benefits, or another kind of benefits?

Thanks and best regards,
Paddy
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Marek Muc
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Re: IAS 19: non-compete upon termination of an employment contract

Post by Marek Muc »

It's a post-employment benefit. Strictly speaking I think you would need to treat it as a defined benefit plan as described here:
https://ifrscommunity.com/knowledge-bas ... efit-plans

But in practice I've seen companies just recognising it only when the executive leaves the company (then it's a one-off expense for all the payments that the company will make under this arrangement, discounted if needed)

It can be a termination benefit is specific circumstances as described here:
https://ifrscommunity.com/knowledge-bas ... n-benefits
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