The purpose of the proposed bill is to reduce the use of employment clauses. If enacted, the new law is going to contain all rules concerning the use of employment clauses, inter alia no-hire, non-competition, non-solicitation and combined clauses.
Employers and employees will, however, still be able to use other types of clauses as long as they comply with the Danish Contracts Act (Aftaleloven) and Danish employment law in general. Thus, it is still possible for companies to take the special needs of a specific industry or company into account, for example, the need for a clawback clause related to an expensive education.
Furthermore, the proposed law contains an option for the social partners to derogate from the rules when they conclude collective agreements.
What is new?
The purpose of the proposed bill is to give Danish companies an incentive to reduce their use of, especially long, employment clauses. The means for that are among others:
- No-hire clauses can only be used in transfer of undertakings-situations
- Employees can only be subject to a non-competition or non-solicitation clause after six months of employment
- The duration of a non-competition or non-solicitation clause cannot be longer than 12 months
- The compensation is differentiated according to the duration of the clauses. Clauses for up to six months are awarded a compensation of 40 % of the salary, whereas clauses for up to 12 months are awarded a compensation of 60 % of the salary
- Combined clauses, which contains both a non-solicitation and non-competition clause, can only run for six months and are awarded a compensation of 60 %
- The employment clauses can at any given moment be terminated by the employer with one month notice
When will the law be in force?
The law will probably come into force by 1 June 2015 and will probably cover all employment clauses concluded after this date. In this regard, the so-called No-hire Clause Law (Jobklausulloven) will be repealed, while existing no-hire and non-solicitation of employees’ clauses will be void after three years.
iuno's opinion
We expect that the proposed legislation will pass through the Danish Parliament without any significant changes.
The bill contains comprehensive changes compared to the existing scheme; therefore, we recommend that companies update their clauses to prepare to comply with the new rules when they enter into force. In this regard, companies should consider whether they are willing to pay higher compensation for a longer period or not.
The current minimum for compensation is 50 %, but it will – according to the proposal – be 40 % for the short 6-month clauses. Therefore, companies should consider changing the compensation provisions in the existing clauses.
The bill is only in Danish, and the link can be found here.