- 22 Dec 2015
- Morten Langer
The Danish Parliament has adopted the new rules on non-competition and non-solicitation clauses. In future, such restrictions will have a maximum duration of 12 months and there will be uniform rules for all employees.
If an employee resigns, the employer may have an interest in ensuring that the employee does not immediately take up employment with the competition, taking with him or her the know-how which the employer has invested in building. Non-competition clauses may prevent this as they bar the employee from taking up employment with a competitor for a specified period. Non-solicitation clauses, on the other hand, may prevent the departing employee from approaching or dealing with his or her former customers in the new job.
In addition, two employers – or an employer and an employee – may agree not to hire each other's employees or that the employee will not hire his or her former colleagues if he or she takes up new employment.
With the recently adopted Post-Termination Restrictions Act, the rules will be uniform for all employees. So far, employees protected by the Danish Salaried Employees Act (white-collar employees) have been subject to special rules in this regard.
The new Act imposes strict limitations with regard to the duration of post-termination restrictions. A 12-month limit will apply to non-solicitation and non-competition clauses, and a 6-month limit if the employee is asked to accept both clauses. So far, no upper limit has applied.
In addition, all employees – and not just those protected by the Danish Salaried Employees Act – must be compensated for accepting such restriction(s) by means of an ongoing payment during the period of the restriction(s). The compensation must amount to between 16 and 60% of the employee's pay at termination – depending on the duration of the restriction and whether the employee has obtained other employment. The rules have thus been tightened on this point, too.
Finally, no-hire clauses – agreements between two employers or an employer and an employee not to hire each other's employees – will be banned, except in connection with business transfers where no-hire restrictions of up to 6 months' duration will be allowed.
The new Act will enter into force on 1 January 2016 and will apply to all new such restrictions agreed. The rules which currently apply for employees protected by the Danish Salaried Employees Act will continue to apply for existing restrictions and, similarly, the provisions of collective agreements concerning such restrictions will continue to apply, if so desired, for the remainder of the collective agreement period.
Norrbom Vinding notes
- that the new rules impose considerable limitations on employers in their use of post-termination restrictions to protect themselves against employees resigning to take up employment with a competitor;
- that they also impose considerable limitations on the use of non-solicitation clauses or combined non-solicitation and competition clauses;
- that with the new rules, there will be strict conditions for the validity of agreements about post-termination restrictions;
- that the new rules concerning compensation and the calculation of compensation must be expected to be significantly more complicated for employers to manage; and
- that employers with a need for protection which goes beyond what is available under the new Act may be expected to find new ways and supplement the restrictions with other measures.