Denmark consolidates and expands legislation on employment clauses
The Danish Parliament aims to increase employee protection and incentivize employers to use less comprehensive employment clauses by passing the Employment Clauses Act. The law entered into force on January 1, 2016.
The most significant change is the outright prohibition of all non-solicitation clauses regarding attempts to induce employees to leave their employment. Employers can therefore no longer enter into agreements with their employees or other employers which limit the employees’ ability to gain employment elsewhere. The sole exception to this is agreements between the parties in business acquisitions with a duration of no more than 6 months.
Non-compete and non-solicitation clauses regarding customers and business partners were previously regulated by the Salaried Employees Act, which regulates the legal rights of employees primarily tasked with office work, sales, technical or clinical services not related to factory work, or supervision and management. While such clauses were used in fields not covered by the Salaried Employees Act, they were only subject to a general reasonability regulation
in the Contracts Act. With the new Employment Clauses Act, the Non-solicitation Clauses Act as well as the provisions on non-compete
and non-solicitation clauses in the Salaried Employees Act have been repealed and consolidated into the Employment Clauses Act.
In addition to imposing a 12-month duration limit on a non-compete or non-solicitation clause, and a 6-month duration limit on a clause
combining the two, (a combined employment clause), the law enacts a new set of provisions on compensation for employees who are
subject to any of the above mentioned clauses.
The compensation, which is determined from the salary of the terminated employee, consists of a lump sum equivalent to two months’
compensation to be paid out upon termination followed by monthly payments for the duration of the clause. A single non-compete or
non-solicitation clause yields a monthly compensation equivalent to 40 percent of the monthly salary of the terminated employee if the
duration of the clause is 6 months or less and a monthly compensation equivalent to 60 percent of the monthly salary if the duration is 12
months or less. A combined employment clause yields a monthly compensation equivalent to 60 percent of the monthly salary. Previously,
any clause would yield a monthly compensation equivalent to 50 percent of the monthly salary regardless of scope.
These new provisions on compensation are meant to serve as a motivation for employers to use shorter or less restrictive clauses while
also allowing the employers to terminate clauses, thereby absolving themselves from having to pay a monthly compensation. If the
employee is wrongfully terminated, any non-compete clause or the non-compete aspect of a combined employment clause is rendered
invalid while the employee retains their right to a lump sum.
Clauses covered by the law are subject to general necessity and proportionality requirements, as well as a number of requirements
regarding the duration of the employment and the degree of confidentiality or the fiduciary duty mandated by the position.
Non-solicitation clauses regarding attempts to induce employees to leave their employment currently in effect will remain valid until
January 1, 2021, while any existing non-compete or non-solicitation clauses will be unaffected by the new law. New employment
contracts are invalid to the extent that they are in violation of the law, and employee rights granted by the law can only be waived by
collective agreements between major labour unions and employers.
Although there are no fines imposed for non-compliance with the law, employers nevertheless have an interest in ensuring the validity of
employment clauses going forward.
For further information, please contact:
Josias Svendstorp, Assistant Attorney
js@kellerlaw.dk
