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See why a non-compete clause and a non-solicitation clause matter
The act on Restrictive Employment Clauses
Non-solicitation and non-compete clauses are written agreements a company can enter into with special employees, e.g. key employees and managers. The agreements must ensure that the company is not put at a competitive disadvantage when the employee resigns from his position.
In this article, we will make you more aware of what characterises both a customer and non-compete clause and which conditions must be met before the agreements are valid. In this context, it is recommended that you always seek legal assistance.
What is a non-solicitation clause?
The workplace can impose a non-solicitation clause on its employee if the employee is in contact with the company's customers. A non-solicitation clause is an agreement which means that the employee cannot work for, or have direct or indirect working contact with the workplace's customers for a certain, agreed period of time after their resignation.
A non-compete clause must meet the criteria below before it is valid:
- The non-solicitation clause must include the agreed financial compensation the employee will be paid during the period in which the clause applies. The financial compensation is a monthly benefit and must, with an agreed duration of up to 6 months, amount to at least 40% of the salary the employee received at the time of resignation. Clauses where the agreed duration is more than 6 months - and no more than 12 months - the monthly compensation must be at least 60% of the salary the employee was paid at the time of resignation
- The duration of the non-solicitation clause may not exceed 12 months
- The non-solicitation clause must only limit the employee in relation to customers with whom the employee has been in dialogue with. In addition, the employee must have been in contact with this customer group during the past 12 months prior to termination
- At the time of resignation, the employment relationship must have lasted for at least 6 months, otherwise the customer clause does not come into force. This condition must also be described in the clause
- All of the above points must be included in the non-solicitation clause and the agreement must be in writing
Furthermore, it is the workplace's responsibility to provide the employee who resigns from their position with a list of which customers the clause covers. However, the employee is obliged to prepare a draft of this list. Here, the employee has a duty of loyalty to provide the correct customer information.
What is a non-compete clause?
Companies can impose a non-competition clause on an employee if the employee acquires knowledge about the company's conditions that could cause major competitive challenges for the workplace if the employee later resigns from their position.
A non-competition clause is thus an agreement between the workplace and the employee, which means that the employee may not work in, or set up a competing company for a certain period.
The non-competition clause must meet a number of requirements before it is valid:
- The non-competition clause must be entered into with employees who hold a particularly trusted position. The phrase, a position of special trust, implies that if the employee is hired by a competing company, it will put the current workplace at a significant competitive disadvantage. A non-compete clause is typically relevant if the company hires a new manager or key employee
- The company must inform the employee in writing about which employment conditions result in the company being forced to establish a non-competition clause with the employee. A justification could be, for example, that the employee gains insight into key figures, customer registers or strategic price agreements
- The non-competition clause must also spell out the agreed financial compensation the employee will be paid in the period when the clause comes into force. The monthly financial compensation must, with an agreed duration of up to 6 months, amount to at least 40% of the salary at the time of resignation. Conversely, the monthly compensation for clauses with an agreed duration of more than 6 months - and no more than 12 months - must be at least 60% of the salary at the time of resignation
- Like customer clauses, a non-competition clause must not have an agreed duration of longer than 12 months. In addition, the employment relationship at the time of resignation must have lasted at least 6 months. If the latter condition is not met, the clause is not valid
- Finally, the non-competition clause must be a written agreement, and all of the above points must be included in the non-competition clause
It is also worth mentioning that your workplace can only make use of the non-competition clause if the conditions below are met. The non-competition clause comes into force if:
- The employee resigns from their position. The termination must not be based on default on the part of the workplace
- The company dismisses the employee. However, the termination must be factually justified in the employee's circumstances, e.g. unacceptable behaviour or performance
Furthermore, the non-competition clause continues to apply in the event of justified dismissal of the employee, without your company having to pay compensation to the employee.
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