Introduction
Treating non-solicitation obligation as non-competition obligation
Limited nature of non-solicitation of employees
Limited nature of non-solicitation of customers
The Employment Contracts Act was amended at the beginning of 2022, meaning that if employment contracts concluded after 1 January 2022 contain a non-competition obligation that remains in force after an employee has been dismissed, the employee will be entitled to compensation equal to 40% or 60% of their regular monthly salary during the term of the non-competition obligation. This rule will also apply to existing employment contracts from the beginning of 2023. The change has brought increased focus to other post-contractual restrictions.
However, a non-solicitation obligation could bring sufficient protection for employers, without needing to pay compensation to employees.
Treating non-solicitation obligation as non-competition obligation
The Employment Contracts Act does not contain any regulations concerning post-contractual non-solicitation obligations. In the absence of specific norms, the non-solicitation obligations have been seen as valid and permissible, provided that they are reasonable.
However, the Supreme Court decided in 2003 that the rules that regulate non-competition obligations could be applied to non-solicitation obligations where the non-solicitation obligation would, in practice, limit the employee's possibility to be hired within the same sector in the same way as a non-competition obligation. If a non-solicitation clause is treated as a non-competition clause, the clause would be valid only if the company could demonstrate that there are sufficient reasons to include such a limitation in the employment agreement. Similarly, if the clause is valid, the employee would be entitled to the same compensation as for a non-competition obligation.
Limited nature of non-solicitation of employees
A non-solicitation obligation that limits the employee's right to solicit other employees at the company and aims to restrict recruitments from the employee's former employer is rarely problematic from a legislative point of view. Even if the employee is not allowed to contact their former colleagues and persuade them to join the same company, the limitation would normally not inhibit the employee from working for their new employer.
However, the efficiency of a non-solicitation of former colleagues is, in practice, quite limited. Based on Finnish legal practice, such a non-solicitation would only be relevant if the employee actively participated in the recruitment process and either asked a former colleague to come and work with them at the new company or influenced the decision to hire the same person. If an employee's former colleague independently approached the new employer, it would be almost impossible to prove that the employee had breached their non-solicitation obligation, especially if the inquiry concerned a position that had been publicly advertised.
Limited nature of non-solicitation of customers
A non-solicitation clause that prohibits the employee from soliciting the company's existing customers after the employee has been dismissed is more likely to cause issues and, therefore, be treated as a non-competition obligation. If the market is very concentrated and there are only a few potential customers, a non-solicitation clause could easily mean that, in practice, the employee would not be able to change employers within the same sector, as the employee would not have any customers to target. For example, in a 2019 decision, an appeal court ruled that a non-solicitation obligation had been treated as a non-competition obligation because the employee was selling solutions primarily to 21 public entities and the non-solicitation obligation would have covered 14 of them; therefore, the non-solicitation clause severally restricted the employee from working within the same sector.
The situation may be different if there are plenty of potential customers and a non-solicitation obligation would cover only a small segment of the market. If there is a risk that a general non-solicitation obligation would cover too much of the sector, the company could limit the non-solicitation obligation to only a few selected customers. However, such a limited non-solicitation clause has not yet been tested in the courts, which may consider that excluding key customers would limit the employee's options in the same way as a non-competition clause.
For further information on this topic please contact Jouni Kautto at Waselius & Wist by telephone (+358 9 668 9520) or email ([email protected]). The Waselius & Wist website can be accessed at www.ww.fi.