Post-Employment Obligations

By Riikka Heinonen, Pia Skovgaard Hansen, Simon Söderholm

12-2019

SWEDEN

In Sweden, Denmark as well as in Finland, an employee has a general duty of loyalty towards her/his employer. This means that the employee, among other things, must protect the employer's business information and refrain from activities which compete with the employer's business. The employee's general duty of loyalty ends when the employment ceases.

An employer may have an interest in protecting its interests towards an employee once the employment has ended. To this end, the employer may ask the employee to sign a post-employment obligation clause. In a post-employment obligation clause, the employee agrees to observe certain restrictions for the benefit of the employer during a certain time period after the end of the employment.

The most notable post-employment obligation is a non-competition clause. In a non-competition clause, the employee agrees to refrain from competing activities during a time period after the end of the employment.

In Sweden, the non-competition period shall, as a general rule, not exceed 18 months. During the non-competition period, the employee is entitled to receive monthly compensation from her/his (former) employer. The compensation shall correspond to the employee's loss of salary caused by the non-competition restriction but is capped at 60 per cent of the employee's monthly salary (as of the end of the employment).

DENMARK

In Denmark, post-employment obligation clauses are governed by the Danish Act on Restrictive Covenants. The Act includes quite rigid and specific requirements in terms of how the post-employment obligation clause must be drafted in order to be enforceable.

Under the act, there are three types of post-employment obligation clauses; 1) a non-competition clause which may remain in force for either 6 or 12 months post-employment, 2) a non-solicitation of costumers clause which may remain in force for either 6 or 12 months post-employment and 3) a combined clause which may only remain in force for 6 months post-employment.

An employee can only be asked to sign a non-competition clause or a combined clause if the employee holds a particularly trusted position or if the employee has made an invention. There are no corresponding requirements for a non-solicitation of costumers clause.

The employee is entitled to compensation during the restricted period. Depending on the length of the restricted period, the compensation must correspond to either 40 % or 60 % of the employee's monthly salary. The employee is entitled to 2 month's salary in compensation even if the employer chooses not to enforce the post-employment obligation clause at all.

FINLAND

In Finland, non-competition clauses are strictly regulated by the Finnish Employment Contracts Act. Under the act, a non-competition clause may only be imposed on an employee if a particularly weighty reason exists.

If the non-competition period does not exceed 6 months post-employment, the employer has no obligation to pay compensation during the restricted period. If the employer wants to extend the non-competition period for more than 6 months, the employer must pay reasonable compensation during the part of the non-competition period which exceeds 6 months.

The legislation on non-competition clauses has recently been under wide discussion in Finland. A government working group was established to examine the need for legislative amendments - a memorandum of the results was published on 14 September 2019. It is likely that an obligation to pay some sort of mandatory compensation by the employer to the employee for the entire duration of the non-competition period is introduced in Finland, similarly as in Sweden and Denmark. A government bill presenting the legislative changes will be published in autumn 2020.

In Sweden, Denmark as well as in Finland, it is important that post-employment obligation clauses are drafted in a state of the art way to ensure that they are enforceable. Bird & Bird's employment law experts are happy to assist you.