Bill on Restrictive Employment Covenants
02 November 2015
As was expected after the Danish Government had announced its legislative programme for 2015/2016, the bill on a new act on restrictive employment covenants has now been resubmitted to the Danish Parliament.
The bill was introduced by the Danish Minister of Employment, Jørn Neergaard Larsen, and is in all essentials a resubmission of Bill No. 196 on restrictive employment covenants submitted in April 2015, which was repealed in connection with the calling of a general election.
The purpose of the bill is to limit the use of restrictive covenants in order to allow employees to change jobs and to make use of their expertise and qualifications with a new employer. Thus, the new rules will apply to all employment relationships involving restrictive covenants, also with regard to managing directors.
The bill still allows companies to protect their business secrets by means of a non-solicitation and noncompetition clauses, but tightens the conditions for the use of such clauses. Amongst other things, such clause cannot be enforced until after six months of employment and its duration cannot exceed a term of 12 months following the expiry of the employment relationship. Also, the rules regarding payment of compensation have been adjusted in order to motivate companies in general to choose restrictive covenants of short duration and, on the whole, limit their use of such clauses.
Furthermore, the bill entails that new agreements on nonhire clauses are prohibited, while existing non-hire clauses become invalid after a transition period of five years, counted from the entry into force of the act. However, the bill allows these new rules to be deviated from by collective agreement and existing rules on restrictive employment covenants based on collective agreements to remain in force.
The act becomes effective for agreements on restrictive covenants entered into as of 1 January 2016 or later. On the other hand, the new rules will not apply to nonsolicitation and non-competition clauses concluded before this date. Such clauses are governed by the rules applicable until now.
We will of course follow up on this after the adoption of the new rules.
The purpose of the bill is to limit the use of restrictive covenants in order to allow employees to change jobs and to make use of their expertise and qualifications with a new employer. Thus, the new rules will apply to all employment relationships involving restrictive covenants, also with regard to managing directors.
The bill still allows companies to protect their business secrets by means of a non-solicitation and noncompetition clauses, but tightens the conditions for the use of such clauses. Amongst other things, such clause cannot be enforced until after six months of employment and its duration cannot exceed a term of 12 months following the expiry of the employment relationship. Also, the rules regarding payment of compensation have been adjusted in order to motivate companies in general to choose restrictive covenants of short duration and, on the whole, limit their use of such clauses.
Furthermore, the bill entails that new agreements on nonhire clauses are prohibited, while existing non-hire clauses become invalid after a transition period of five years, counted from the entry into force of the act. However, the bill allows these new rules to be deviated from by collective agreement and existing rules on restrictive employment covenants based on collective agreements to remain in force.
The act becomes effective for agreements on restrictive covenants entered into as of 1 January 2016 or later. On the other hand, the new rules will not apply to nonsolicitation and non-competition clauses concluded before this date. Such clauses are governed by the rules applicable until now.
We will of course follow up on this after the adoption of the new rules.
