New rules on non-competition and non-solicitation clauses in Denmark

By 1 January 2016, Danish companies’ ability to use non-competition and non-solicitation clauses, as well as anti-poaching clauses was reduced. The Danish Parliament has passed new rules on so-called “employment clauses”, which consolidates the different laws on the use of the different types of employment clauses into one law, including anti-poaching clauses, non-competition clauses, non-solicitation of customer clauses, non-solicitation of employees clauses and combined clauses.

The new rules apply to all clauses concluded from 1 January 2016, while clauses concluded before the turn of the year are subject to the previous rules – also even though the employment begins after the turn of the year.

From 1 January 2016, restrictive covenants must comply with the following rules to be enforceable.

Non-solicitation of customer clauses:

• Can only be enforced in relation to customers with whom the employee him/herself has had business-related contact with within the past 12 months

Non-competition clauses:

• The employee has to hold a particularly trusted position
• The company has to describe in the clause, why the clause is required

For both non-solicitation and non-competition clauses

• Can only be enforced after 6 months of employment
• Maximum 12 months’ term from the effective date of termination
• Compensation for non-solicitation and non-competition clauses is differentiated dependent on the term of the clause:
  • Up to 12 months duration: Is compensated with up to 60 % of the remuneration
  • Up to 6 months duration: Is compensated with up to 40 % of the remuneration
• If the employee finds another appropriate job, the compensation is determined by the term of the clause
  • Up to 12 months duration: Is compensated with 24 % of the remuneration from the 3rd to the 12th month after the effective date of termination.
  • Up to 6 months duration: Is compensated with 16 % of the remuneration from the 3rd to the 6th month after the effective date of termination.

Combined clauses – non-solicitation and non-competition clauses

• Maximum term of 6 months from the effective date of termination.
• The employee shall be compensated with 60 % of the remuneration if the clause has a term of up to 6 months.
• If the employee finds another appropriate job, the employee shall be compensated with 24 % of the remuneration from the 3rd to the 6th month after the effective date of termination.

Furthermore, the employee has to receive the above-mentioned information in writing. This can be done either in an independent document or as a part of an employment contract.

The clauses can be terminated with 1 months’ notice by the employer.

Non-solicitation of employee clauses and non-poaching/no-hire clauses are being completely banned, except for company acquisitions. Existing agreements regarding job clauses will be valid for 5 years.

Employers and employees are still able to make agreements regarding other types of clauses as long as they stay within the limits of the Danish Contracts Act and other general employment laws. Hereby, companies are still able to accommodate specific needs within the company or the industry, e.g. the need of making claw back clauses related to MBAs or other funded educations.

At the same time, the unions and the employers’ organizations have the opportunity to deviate from the new rules when entering into collective agreements.

IUNO’s opinion

The new rules introduce extensive changes compared to the previous system. Therefore, we recommend companies to review and update their standard contracts containing any such clauses.

For existing employees, companies should consider whether they want to offer the previous or the new minimum level of compensation. The previous compensation for short 6-months non-solicitation and non-competition clauses was 50 %, while the new minimum level is 40 %. Therefore, companies should consider whether they want to change the provisions regarding compensation in existing clauses.

Moreover, companies should pay attention to the fact that clauses signed before the turn of the year are not covered by the new rules. For example, if the clause was signed on 15 December 2015 the contract can be upheld even though the new rules have come into force.

It is furthermore important to know that it is possible to change employment contracts without the clauses losing their validity. This can only be done if the clause is carried on as it was in the old contract – it is not possible to make changes in the clause and then carry it on.