Employment law: New rules on restrictive clauses
A new Danish Act that regulates clauses restricting competition and solicitation of customers and employees came into force on 1 January 2016.
Three different types of clauses are regulated by the new Act.
- Non-compete clause: Prohibits an employee from competing with the employer.
- Non-solicitation of customers clause: Prohibits an employee from having any business relationship with the employer's customers or other business associates.
- Non-solicitation of employees clause: Can be either a clause between two companies obligating the parties not to solicit or recruit each other's employees, or a clause between a company and an employee obligating the employee not to solicit or recruit any colleagues, if he/she leaves the company.
Who is protected under the new rules?
Most of the former Danish regulation on restrictive clauses is only applicable to white-collar employees. However, under the new rules both white-collar and blue-collar employees enjoy protection.
When can a non-compete clause or a non-solicitation of customers clause be enforced?
Non-compete and non-solicitation of customers clauses, or a combination thereof, are only enforceable under the new Act if the following conditions are met:
- The clause must be contained in a written agreement.
- The employee must have completed at least 6 months' continuous employment at the time of termination.
- The term of the restrictive clause can be no more than 12 months, commencing from the termination of the employment, or 6 months if it is a combined clause.
- The requirement that a non-compete or non-solicitation of customers clause is only valid if the employee is entitled to compensation during the entire term of the clause is unchanged. However, the size of the compensation has changed: If the term is 6 months or less, the compensation must be at least 40% of the monthly salary. If the term is more than 6 months, the compensation must be equal to at least 60% of the salary per month. If the employee is restricted by a combined clause, compensation must be at least 60% of the monthly salary.
- The right for an employer to set off compensation against a former employee's salary from new employment has been abolished. According to the new Act, an employee is always entitled to a fixed, reduced compensation during periods of new suitable employment.
- A non-compete clause may only be imposed on an employee holding a particularly trusted position and who is trusted with confidential information. The employer must inform the employee in writing why a non-compete clause is required.
- A non-solicitation of customers clause may only be enforced in relation to customers with whom the employee has been doing business himself/herself within the past 12 months before the date of giving notice to terminate the employment. It is no longer possible to make a list of relevant customers.
Non-solicitation of employees clauses
Under the old rules, non-solicitation of employees clauses were invalid unless: a) an agreement had been made with each employee whose job mobility was restricted by the clauses; and b) the relevant employees received compensation corresponding to a minimum of 50% of their salary after termination of the employment for the period in which their job mobility was restricted by the clause. Under the new rules, it is no longer possible to enter into non-solicitation of employees clauses as of 1 January 2016. However, to a limited extent it will still be possible to use such clauses in connection with business transfers. Non-solicitation of employees clauses agreed before 1 January 2016 will still be valid and enforceable until 1 January 2021.