Member Article

In future, it will be much more difficult for Danish companies to make use of special restrictive covenants in connection with hiring employees. That will be the result if a new bill on restrictive employment covenants is adopted. The bill includes a tightening of the rules on the use of non-competition and non-solicitation clauses whereas non-hire clauses will practically be prohibited.On the face of it, the new rules will provide more flexibility for the employees. However, conversely, there is a risk that those lines of business which diligently make use of restrictive covenants will become more reluctant to hire key employees and to put them in charge of customers etc. One of the objectives of the new rules is to create better conditions for growth in the business community, but that result is not a given. In any case, the companies must be prepared for some significant changes. Extension and tightening of the rules The bill combines the various current rules on restrictive employment covenants. At the same time, the act will be extended to the effect that, going forward, restrictions on the use of non-competition and non-solicitation clauses will apply to all types of employees - however, only those who hold a "position of very special responsibility" - and not only to salaried employees as is the case today. Moreover, non-hire clauses will be prohibited with the exception of situations of transfer of undertakings and hiring temporary workers where non-hire clauses may be used in limited circumstances. The new rules imply that, in future, it will only be possible for an employer to bind an employee to a non-competition or a non-solicitation clause for up to one year. If the employer binds the employee to both clauses at the same time, the binding period cannot exceed 6 months. As extra motivation for choosing to use short-term restrictive covenants, it is proposed that the employer is to pay the employee a higher monthly compensation if the employer uses restrictive covenants with a restriction period exceeding 6 months. More money in compensation As something new, the employer will always have to pay a lump sum of two months' full salary when an employee who is bound by a restrictive covenant is dismissed. Another significant amendment is that the employer's right to set off income obtained from another employment will partly cease. Even if the employee obtains other employment, the employer must pay two months' full salary, and for the remaining part of the restriction period, the employee must receive a monthly compensation ranging between 16 per cent and 24 per cent of the salary. This is a significant tightening of the rules. Last call for contracts containing the old rules The deadline for responses to the consultation has recently passed, and it is expected that the act will come into force on 1 July 2015. However, the bill contains several matters of dispute, for which reason a certain "adjustment" of the bill is expected prior to its entry into force. The new rules will only be applicable to contracts concluded after the entry into force of the act. Consequently, companies may hurry to enter into new employment contracts under the old rules, provided that the rules on notification are complied with and that the employees will accept the restrictive covenant under the "old" rules. However, this is the last call. If the bill is adopted, it will overall be both more difficult and more expensive for the employers to make use of non-competition and non-solicitation clauses in future.