Violation of the Danish Marketing Practices Act resulted in summary dismissal
28 February 2014
The recruitment of a large number of employees who immediately before had worked for a competitor was in contravention of the Danish Marketing Practices Act. This was established by a judgment of the Danish Maritime and Commercial Court on 7 January 2014.
The case concerned the question whether a company had violated Sections 1 and 19 of the Danish Marketing Practices Act by systematically recruiting a large number of employees from a competitor and subsequently taking advantage of their disloyalty towards the competitor.
In August 2007, the Regional Director of the competitor entered into a prior agreement of employment with the company for entry into force as soon as there was a base of qualified centre directors at the company. On 7 October 2007, the Regional Director received an employment contract from the company which he signed on 10 October 2007. However, this contract was subsequently cancelled on the advice from his own legal counsel as the signing of the contract would constitute a breach of his employment contract with the competitor.
On 17 October 2007 the Regional Director was informed - through a newly established anonymous email address - of the recruitment of a large number of the competitor's senior employees. In the period that followed, the competitor terminated the restrictive covenants of these senior employees on the basis of information from the Regional Director.
Within a short period of time, a total of 89 employees from the competitor were engaged by the company.
On 2 November 2007, the Regional Director and the competitor entered into a severance agreement. However, having discovered that the Regional Director had prepared a change of job, which in the opinion of the competitor represented a gross disloyalty, the company summarily dismissed the Regional Director.
The Danish Maritime and Commercial Court found that the exchange of information between the Regional Director and the company regarding the senior staff of the competitor for the purpose of employment with the company constituted an intentional and gross violation of Section 1 of the Danish Marketing Practices Act on the part of the company, and an intentional and gross negligence of his duty of loyalty on the part of the Regional Director. Furthermore, the Court found that this unlawful conduct was instrumental in the competitor's decision to terminate the clauses on non-solicitation of customers of those employees who were leaving the employment with the competitor.
In addition to this, a number of employees - who were still working for the competitor during their periods of notice - contributed to a major order being redirected from the competitor to the company. The Maritime and Commercial Court found that by doing so the company had grossly violated Sections 1 and 19 of the Danish Marketing Practices Act.
On the basis of an overall assessment of the market disturbance and the loss inflicted on the competitor by the unlawful conduct of the company, the company was ordered to pay compensation in the amount of DKK 15 million with the addition of interest as well as the legal costs of the case amounting to well over DKK 1,250,000.
With regard to the Regional Director, the Court found that the summary dismissal was justified but that his actions, which constituted negligence pursuant to Section 4 of the Danish Salaried Employees Act, had predominantly been carried out in the interest of the company, for which reason there were not sufficient grounds to impose liability for damages on the Regional Director. However, he was ordered to pay a contract penalty corresponding to two months' salary for violation of the restrictive covenants.
The judgment shows that there are limits on the recruitment of a competitor's employees and that such limits are clearly transgressed if a senior employee's knowledge of the staff employed with the competitor is exploited for the purpose of the recruitment of these employees.
According to available information, the judgment has not been appealed to the Danish Supreme Court.
In August 2007, the Regional Director of the competitor entered into a prior agreement of employment with the company for entry into force as soon as there was a base of qualified centre directors at the company. On 7 October 2007, the Regional Director received an employment contract from the company which he signed on 10 October 2007. However, this contract was subsequently cancelled on the advice from his own legal counsel as the signing of the contract would constitute a breach of his employment contract with the competitor.
On 17 October 2007 the Regional Director was informed - through a newly established anonymous email address - of the recruitment of a large number of the competitor's senior employees. In the period that followed, the competitor terminated the restrictive covenants of these senior employees on the basis of information from the Regional Director.
Within a short period of time, a total of 89 employees from the competitor were engaged by the company.
On 2 November 2007, the Regional Director and the competitor entered into a severance agreement. However, having discovered that the Regional Director had prepared a change of job, which in the opinion of the competitor represented a gross disloyalty, the company summarily dismissed the Regional Director.
The Danish Maritime and Commercial Court found that the exchange of information between the Regional Director and the company regarding the senior staff of the competitor for the purpose of employment with the company constituted an intentional and gross violation of Section 1 of the Danish Marketing Practices Act on the part of the company, and an intentional and gross negligence of his duty of loyalty on the part of the Regional Director. Furthermore, the Court found that this unlawful conduct was instrumental in the competitor's decision to terminate the clauses on non-solicitation of customers of those employees who were leaving the employment with the competitor.
In addition to this, a number of employees - who were still working for the competitor during their periods of notice - contributed to a major order being redirected from the competitor to the company. The Maritime and Commercial Court found that by doing so the company had grossly violated Sections 1 and 19 of the Danish Marketing Practices Act.
On the basis of an overall assessment of the market disturbance and the loss inflicted on the competitor by the unlawful conduct of the company, the company was ordered to pay compensation in the amount of DKK 15 million with the addition of interest as well as the legal costs of the case amounting to well over DKK 1,250,000.
With regard to the Regional Director, the Court found that the summary dismissal was justified but that his actions, which constituted negligence pursuant to Section 4 of the Danish Salaried Employees Act, had predominantly been carried out in the interest of the company, for which reason there were not sufficient grounds to impose liability for damages on the Regional Director. However, he was ordered to pay a contract penalty corresponding to two months' salary for violation of the restrictive covenants.
The judgment shows that there are limits on the recruitment of a competitor's employees and that such limits are clearly transgressed if a senior employee's knowledge of the staff employed with the competitor is exploited for the purpose of the recruitment of these employees.
According to available information, the judgment has not been appealed to the Danish Supreme Court.
