The Danish Government has recently enacted a new law involving essential changes to post-employment, non-competition and non-solicitation clauses valid as from 1 January 2016
The law restricts the use of employment clauses and it will be more expensive for companies to use such clauses in the future as the compensation is higher and it will no longer be possible to fully offset if / when the employee obtains new employment.
The new law applies to employment clauses concluded after 1 January 2016 for all employees. The new law will also include non-competition clauses for CEOs.
Azets notes that employment clauses entered into before 1 January 2016 will apply until 1 January 2021. This means that in the future there will be different rules in this area, depending on the date when the clauses are entered.
What will change?
From 1 January 2016, it is prohibited to enter into employment clauses between two businesses or between an employee and a company, except in business transfers where an employment clause of up to six months can be agreed.
You can read more about the definition of employment clauses below.
From 1 January 2016 a non-competition (and combined clauses) can be concluded only when an employee has a very special position of trust. Previously, the employee simply needed a "special position of trust ". It must be informed in writing why the employee's position makes the clause necessary.
You can read more about the definition of competition clauses below.
From 1 January 2016 non-solicitation clauses can be entered into only for customers with whom the employee has been in business during the last 12 months prior to termination. The employee must be given a list of the customers covered by the clause. Azets recommends that such a list is currently updated otherwise the clause could be invalid.
You can read more about the definition of non-solicitation clauses below.
The new law limits the duration of the employment clauses. Furthermore, the clauses are only valid from the day when the employee has six months' seniority in the company.
The new law distinguishes between “short clauses” and "long clauses”. A “short clause” has a duration of six months after the termination of employment, whereas a “long clause” has a duration of 12 months after the termination of employment.
A combined employment clause (competition and non-solicitation) can be valid up to six months as a maximum after the termination of employment.
All clauses can be terminated with one month's notice by the employer, but non-compliance with the new law will invalidate the post-employment clauses.
The new law requires that all employees - not only white-collar employees - are compensated for signing a clause. The compensation is an ongoing payment of between 16-60 % of the employee's salary at the time of termination of employment. The compensation must be paid while the clause is in force.
Short clauses of up to six months are compensated with 40 % of the employee’s salary at the date of termination of employment. Long clauses of up to 12 months are compensated with 60 % of the employee’s salary at the date of termination of employment.
As mentioned, the combined clauses can only be concluded for a period of six months, but they must be compensated in the same way as long clauses, which means 60 % of the employee’s salary at the date of termination of employment.
If the employee during the clause period obtains other appropriate work the compensation will be reduced.
The compensation for the competition and combined clauses for the first two months must be paid as a lump sum when the employee contract is terminated.
Definition of the employment clauses:
A post-employment clause
is an agreement that an employer concludes with other companies in order to prevent or restrict an employee’s possibilities of obtaining employment with them, or an agreement concluded with an employee in order to prevent or restrict the employee’s possibilities of obtaining employment with an other company.
A non-competition clause
is an agreement between an employee and the employer under which the employee, for competition reasons, is not entitled – after termination of employment – to carry on business or any other activity of a particular nature or to take up employment with a company carrying on such business or activity.
A non-solicitation clause
is an agreement between an employee and his or her employer under which the employee – after termination of employment – is not entitled to take up employment with or have direct or indirect commercial contact with his or her former employer’s customers and other business relations.
A combined employment clause
is an agreement that an employee is bound by a non-competition clause and a non-solicitation clause in the same period of time.