The government has introduced a bill, Prop 85L, setting out new rules on restrictive covenants in the labour market. The proposal includes both non-compete clauses and non-solicitation clauses, and would make major amendments to the existing legislation. If implemented, the new rules will have significant implications for both employers and employees.
At present, only non-compete clauses are subject to legislative regulation. Section 38 of the Contract Act governs non-compete clauses in general, as well as in employment contracts. Under the act, non-compete clauses are subject to a reasonableness test, a key part of which is the possibility of the employee obtaining a new job.
The proposed amendments target only non-compete clauses in employment relationships and will thus be included in the Working Environment Act. The bill is designed to enhance mobility in the labour market, promote competition and innovation and increase overall employment.
A managing director may be exempt from the new rules provided that he or she renounces the proposed rights in writing before resigning, in return for severance pay. An agreement stating merely that the managing director has renounced his or her employment protection is insufficient. Consequently, the new rules will apply to managing directors, unless otherwise specifically agreed.
The bill restricts the use of non-compete clauses, as follows:
- Non-compete provisions are valid only if in writing.
- On request by the employee, the employer must provide a written statement regarding whether and to what extent the employer will assert the non-compete clause. The statement must specify the employer's need for a non-compete clause. If the statement does not fulfil these requirements, the non-compete clause will lapse.
- The non-compete clause cannot apply for longer than 12 months following termination of the employment relationship.
- The employee is entitled to compensation equal to his or her salary for the entire period for which the non-compete clause applies, up to a maximum of 18G (the Norwegian base amount; at present, 1G has a value of Nkr90,068). The compensation may also be reduced by up to 50% of any income that the employee earns during the applicable period.
To date, legislation has not dealt with the non-solicitation of customers. Therefore, the bill proposes important clarifications with respect to contractual provisions restricting the employee's right to contact the employer's customers following termination of the employment relationship.
The key provisions are as follows:
- As in the case of non-compete clauses, on request by the employee the employer must provide a written statement regarding whether and to what extent the employer will assert the non-solicitation of customers clause. The statement must specify the customers covered by the non-solicitation clause.
- The clause may cover only customers which the employee has been in contact with or has been responsible for the 12 months before the employer's statement.
- The clause cannot apply for longer than 12 months following termination of the employment relationship.
- There are no compensation requirements.
- Several of the conditions relating to non-compete clauses also apply to non-solicitation of customers clauses:
- The agreement must be in writing;
- The clause does not apply if the employee has been dismissed due to circumstances relating to the undertaking (downsizing) or if the employee has reasonable grounds for terminating the employment following breach of the employment contract by the employer; and
- The clause will lapse if the employer fails to provide a statement or provides an incomplete statement concerning application of the clause.
Hitherto, two types of provision on the non-solicitation of employees have been discussed. The first type concerns agreements between employers preventing employees from working for other undertakings, while the second concerns agreements between the employer and the employee prohibiting the employee from encouraging other employees to terminate their employment relationship. The bill covers only the first type of provision.
The bill prohibits the inclusion in the employment contract of provisions on the non-solicitation of employees. However, there are two exceptions:
- Contractual provisions on the non-solicitation of employees are allowed between companies during negotiations concerning a possible business transfer. The provisions apply during the negotiation period and until the negotiations or the business transfer concludes.
- Such provisions may also be agreed for a period of six months following the business transfer, provided that the employer informs the relevant employees in writing.
The bill was heard in May 2015 and is now before the Parliamentary Committee for Labour and Social Affairs, with a recommendation deadline of November 3 2015. As there is no set date for the parliamentary discussions and voting, the new rules are unlikely to enter into force before 2016.
According to the proposed transitional rules, the legislation shall apply to all existing agreements, but not until 12 months following implementation. Thus, employers will have to review their employment contracts in order to evaluate the need for possible amendments.
For further information on this topic please contact Ole Kristian Olsby at Homble Olsby Advokatfirma AS by telephone (+47 23 89 75 70) or email (email@example.com). The Homble Olsby Advokatfirma website can be accessed at www.homble-olsby.no.
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