Earlier this spring (AD 2016 no. 14), the Swedish Labour Court granted an interim injunction (Sw: intermistisk säkerhetsåtgärd), i.e. an injunction in force during the period of the court proceedings, against an employee of a company ("Company A"), to the effect that the employee was ordered to refrain from competing with Company A during his notice period on termination of employment. Non-compliance with the injunction carried a sanction of a fine (Sw: vite) of SEK 500,000.
The employee had served notice of termination of his employment. The parties disagreed on whether the employee was required to serve a notice period of three months or six months. The parties did agree, however, that the employee had taken up a position with a competitor ("Company B") without serving even the shorter notice period. Company A requested that the district court grant an injunction against the employee (both interim and permanent) to refrain from competing during the notice period (which, according to Company A, was six months). After the district court had considered and ultimately denied the request, Company A appealed to the Swedish Labour Court.
The Swedish Labour Court held that Company A had shown probable cause (Sw: sannolika skäl) for its claim that the employee was acting in breach of its duty of loyalty. The court argued that it is clear from case law that taking up a position with a competing company during the notice period is in breach of an employee´s duty of loyalty to the current employer. The court also found that Company A had shown probable cause for its claim that the notice period was six months. Lastly, the court held that it could reasonably be expected that Company A would suffer material damage from the employee's activities in breach of his duty of loyalty. Thus, the Swedish Labour Court found that Company A's request for an interim injunction against the employee should be granted and that a fine of SEK 500,000 would be sufficiently high to act as a deterrent against non-compliance.
The question of whether the courts would grant an interim injunction against an employee not to compete based on the contractual duty of loyalty has not, until now, had a clear answer. Now, however, the Swedish Labour Court has shown that it is prepared to grant injunctions in order to enforce the duty of loyalty during the notice period on termination of employment. In this case, the employee was engaged in a competing business, but the duty of loyalty comprises not only a duty not to compete. An employee in a private company must also keep sensitive information confidential, not "bad-mouth" the employer and generally act in good faith. The fact that the courts are prepared to grant injunctions to enforce the duty of loyalty during the notice period on termination of employment reinforces the notice period's function as a "cool-down" period, during which the employee is phased out of the business and deprived of access to sensitive information and contacts, while not being able to act in a manner that could be harmful to the employer's business (which is the case after the termination of employment, in the absence of any specifically agreed post-contractual obligations). It is uncommon for companies to apply for injunctions against their employees, whether former or current. However, as this case shows, injunctions are a valuable tool to protect the employer's business against disloyal employees. Naturally, in order to ensure that countermeasures can be used in a timely fashion, it is important for employers to keep themselves informed of the activities of employees on notice.
Comments from a Finnish perspective:
In Finland, employees have a statutory obligation not to compete against their employer during their employment relationship. Employers can apply for an injunction against the new employer and/or the employee if the employee breaches the statutory obligation not to compete against their current employer.