The Danish Parliament has adopted new rules on employment clauses (non-competition and customer and employee non-solicitation clauses).

The new rules apply to contracts entered into as of 1 January 2016 and onwards. The Act does not alter the conditions of non-competition clauses and customer non-solicitation clauses agreed on in writing before 1 January 2016, and the new rules will not imply any need to amend the existing employment contracts (except in cases employee non-solicitation clauses, see below).

The new Act does, however, involve significant changes to future clauses, and we recommend that all companies familiarize themselves thoroughly with the new rules and make the necessary changes to any existing standard employment contracts.

The new Act applies to all employees. For directors, however, only the escape provisions apply (see below).

We have described the following below:

  1. A check list for new non-competition clauses
  2. A check list for new customer non-solicitation clauses
  3. A description of the compensation rules
  4. Briefly about employee non-solicitation clauses and no-hire clauses (Job Clauses)

Non-competition Clauses

Check list for non-competition clauses entered into after 1 January 2016:

  • The clause must be agreed to in writing.
  • The employee's right to compensation must also be described (see below).
  • The clause may only be assigned to “highly” trusted employees (see below).
  • It must be described which circumstances of the employee's employment that make the non-competition clause necessary for the employer.
  • The non-competition clause must be "reasonable". In accordance with the former rules, the non-competition clause must not unreasonably restrict the employee’s access to occupations, and it must not be more extensive/restrictive on the employee than what is necessary in order to protect the employer's business.
  • The maximum duration of the non-competition clause is 12 months (or six months if the employee is also subject to a customer non-solicitation clause).
  • The employer may terminate the non-competition clause by one month’s notice to the end of a month. The employee is entitled to a minimum compensation if the termination occurs later than three months after the employee began the employment and within six months after the employer has terminated the clause.
  • The non-competition clause (or the non-competition clause in a combined clause) will lapse in the event that the employer terminates the employment without the employee having given reasonable cause for the termination, or if the employee resigns due to the employer's default. In such case, the employee will, however, be entitled to a minimum compensation (unlike under the former rules). This provision also applies to directors.   

Highly trusted Employees

The previous rules of the Salaried Employees Act’s Article 18 stated that non-competition clauses could only validly be entered into with salaried employees who held a " trusted” position. With the new Act, employee non-solicitation clauses may only be imposed on employees who occupy a "highly” trusted position or who have entered into an agreement with the employer ont the right to an invention. It is doubtful whether the amended text will lead to a real change in practice. It is, however, important to note that the non-competition clauses and customer non-solicitation clauses may be assigned only to employees who have a real and significant impact on the company. This may, for instance, be employees who have access to special trade secrets.

Customer Non-solicitation Clauses

Check list for customer non-solicitation clauses entered into after 1 January 2016:

  • The clause must be agreed to in writing.
  • The employee's right to compensation must also be described (see below).
  • The maximum duration of the customer non-solicitation clause is 12 months (or six months if the employee is also subject to a non-competition clause).
  • The customer non-solicitation clause only applies to customers, whom the employee has had a business relationship with in the past 12 months prior to the date of termination.
  • In connection with the termination, the employee must receive a list of customers covered by the customer non-solicitation clause.
  • The employer may terminate the customer non-solicitation clause by one month’s notice to the end of a month. The employee is entitled to a minimum compensation if the termination occurs later than three months after the employee began the employment and within six months after the employer has terminated the clause.

Compensation

The new Act results in several amendments to the previous rules on compensation.

Among other things, there is an increase in compensation amounts and a significant reduction in the possibility of offsetting. Consequently, from 1 January 2016 the clauses may (except in cases of employee negligence) no longer end up being "free" for the employer (as was possible in relation to customer non-solicitation clauses under the previous rules).

For clauses concluded from 1 January 2016, the following will apply:

  1. A non-competition clause or a customer non-solicitation clause of maximum six months
    • The compensation must be of at least 40% of the salary per month on the date of resignation. If the employee obtains other appropriate work in the period from the third up to and including the sixth month after the resignation, the employer may make deductions, but the employee must in the last three months receive compensation of at least 16% of the salary per month on the date of resignation.
  2. A non-competition clause or a customer non-solicitation clause of maximum 12 months:
    • The compensation must be of at least 60% of the salary on the date of resignation. If the employee obtains other appropriate work in the period from the third up to and including the 12th month after the resignation, the employer may make deductions, but the employee must in the last nine months receive compensation of at least 24% of the salary per month on the date of resignation.
  3. If an agreement about both a non-competition clause and a customer non-solicitation clause (each of a maximum of six months) has been entered into:
    • The compensation must be of at least 60% of the salary per month on the date of resignation. If the employee obtains other appropriate work in the period from the third up to and including the sixth month after the resignation, the employer may make deductions, but the employee must receive compensation of at least 24% of the salary per month on the date of resignation.
  4. The compensation for the first two months after the resignation must always be paid as a lump sum along with the last payout to the employee (whether the employee has another job or not) ("minimum compensation").

Employee Non-solicitation Clauses/No-hire Clauses (Job Clauses)

  • It will no longer be possible to enter into an agreement about a job clause (except in cases of transfer of business). This means that job clauses entered into after 1 January 2016 will be void.
  • Job clauses entered into before 1 January 2016 in accordance with the formerly applicable Act on Employers’ Use of Non-Solicitation and No-Hire Clauses may be maintained up to and including 1 January 2021.
  • As of 21 January 2021, all job clauses (except in cases of transfer of business) will be void.