As many companies will be aware, the Inventors' Agreement (Sw: Uppfinnaravtalet) and the Agreement on Non-competition Clauses of 1969 (Sw: 1969 års överenskommelse om konkurrensklausuler) (the "1969 Agreement") apply to large areas of the Swedish labour market, governing, respectively, employers' rights to employee inventions and the use of non-compete clauses in employment contracts. Swedish Enterprise (Sw: Svenskt Näringsliv) and PTK have now renegotiated these agreements. Before the new agreements (referred to in this article as the "New Inventors' Agreement" and the "New Non-Compete Agreement", respectively) come into effect, they must be formally adopted by the relevant employers' associations and trade unions. Once adopted, the New Inventors' Agreement and the New Non-Compete Agreement will, respectively, apply to all inventions reported by an employee and all non-compete agreements entered into after 1 December 2015.
A new development in both agreements is that they are expressly intended to be used also in contracts with non-unionized employees, provided that the employer is bound by the agreements. Accordingly, companies will most likely have to apply them in contracts with non-unionized employees. It will be important for companies to ensure that non-unionized employees are well aware of the fact that the agreements apply to their employment, as such employees may otherwise claim that they are not bound by the agreements.
The New Non-Compete Agreement
The New Non-Compete Agreement, and the 1969 Agreement before it, govern employers' use of non-compete clauses in employment contracts. The scope for using non-compete clauses is wider under the New Non-Compete Agreement than under the 1969 Agreement. All companies that rely on trade secrets may now use non-compete clauses. Given the broad concept of "trade secrets", almost all companies will be able to apply non-compete clauses. However, certain restrictions have been retained as regards the categories of employees that can be bound by non-compete clauses.
The New Non-Compete Agreement does not apply to employees in top managerial positions (Sw:företagsledande ställning). Furthermore, the agreement acknowledges the use of provisions other than regular non-compete clauses (e.g. non-solicitation or confidentiality clauses). However, the New Non-Compete Agreement shall not be applicable in relation to such clauses. Accordingly, such clauses may be drafted and agreed upon, taking into account legal requirements in general, as well as good practice on the labor market (but without taking the provisions of the New Non-Compete Agreement into account).
The restricted period permitted has been shortened and should generally not exceed 18 months post termination (or 9 months, if the life span of the trade secrets that the employee has been privy to is short). The restricted period can only be extended beyond 18 months in special circumstances. Compensation for loss of income (capped at 60% of the salary) should still be paid during the restricted period. Compensation is dependent on the loss of income being caused by the non-compete restriction, and the employee is obliged to try to mitigate the loss of income (e.g. by applying for a new job). In connection with the termination of employment, consultations should be initiated in order for the employer to decide whether the non-compete clause should be enforced.
In our view, there will be more scope for companies to use non-compete clauses under the New Non-Compete Agreement. As regards employees in top managerial positions, their explicit exclusion from the scope of the New Non-Compete Agreement is a welcome clarification that non-compete clauses in employment agreements with senior management may deviate from the collective bargaining agreement, which may not always be appropriate for the special circumstances that may apply in the case of senior management.
The New Non-Compete Agreement will most likely have a major impact on how non-competition clauses are assessed and drafted in the future. Companies are well advised to consider the new rules when applying non-compete clauses in employment contracts. The arrival of the New Non-Compete Agreement is important not only for companies that will be bound by the agreement. The 1969 Agreement has been used extensively by the courts when determining whether a non-competition clause should be deemed unreasonable under Section 38 of the Swedish Contracts Act. Accordingly, it may be expected that the courts will now look to its replacement, the New Non-Compete Agreement, when assessing non-compete clauses.
The New Inventors' Agreement
Generally speaking, there are very few changes in the New Inventors' Agreement. The well-established division of inventions into categories A, B and C remains and employers retain the same rights to inventions that fall within these categories. However, the New Inventors' Agreement does contain some changes of note that should be taken into consideration.
- The size of the flat rate award (Sw: schablonersättning), that all inventors should receive, should now be at least 0.5 statutory price base amounts (Sw: prisbasbelopp) ("PBB") (1 PBB = SEK 44,500 as of 2015). If the invention is of a considerable value to the employer's business, the award should be 1 PBB. This is a considerable rise in the size of the awards and also ensures that awards are linked to future price trends; the commentary on the former agreement recommended a minimum award of SEK 1,700.
- Arbitration proceedings must now be initiated within 10 years of the filing of a patent application, as opposed to within 10 years of the employee reporting the invention. Under the rules of procedure of the arbitration tribunal, proceedings may be stayed for a maximum of four years to further investigate the value of the invention. Accordingly, it could potentially take 14 years or more from a patent application before the arbitration tribunal rules on what compensation an employee is entitled to.
Special arbitration tribunal
An agreement regarding a special arbitration tribunal will also enter into force together with the New Inventors' Agreement and the New Non-Compete Agreement. The tribunal will settle disputes regarding the use of non-compete clauses and employee inventions. The arbitral awards will be published, which will facilitate a better understanding of the new rules.
Comments on the agreements from a Finnish perspective:
While there are many similarities between Finnish and Swedish employment legislation, the legislation on non-compete obligations and intellectual property rights is very different. In Finland, both non-compete obligations and intellectual property rights are governed by statute, not by the collective bargaining parties. There are no special arbitration tribunals dedicated to such cases.