The use of non-solicitation and no-hire clauses in Denmark is expected to go into dramatic decline following the enforcement of a new act from 1 July. According to the act, non-solicitation and no-hire clauses will only be valid if the employer has entered a written agreement with the individual employee. Employers are also obliged to pay compensation equivalent to at least 50% of the employee’s salary at termination during the restricted period once the employee has left the company. If the employee obtains other appropriate employment, the former employer will be entitled to deduct such income from the compensation.
The written agreement must include detailed information on how the non-solicitation or no-hire clause limits the employee’s employment opportunities, for how long these conditions apply, and the right to compensation.
Scope of the act
The new act applies to all employers who agree on non-solicitation and no-hire clauses with companies or other third parties and all employees affected by them. Agreements where temp agencies receive fair payment for a client company’s recruitment of a temporary member of staff are exempt.
Special rules apply to non-solicitation and no-hire clauses agreed during negotiations for a company acquisition. The act allows companies involved in such negotiations to agree on non-solicitation and no-hire clauses without any obligation to provide a written agreement or 50% salary compensation. Such clauses can be enforced for up to six months, regardless of whether a company is acquired as a result of the negotiations. If a company acquisition does take place, a non-solicitation or no-hire clause may apply for up to six months after the acquisition date.
Compensation
Non-solicitation or no-hire clauses that fail to live up to the letter of the act are simply invalid, with no further legal sanctions as a result. However, while the bill was being heard, it was discussed whether, under the Danish Act on Employer's Duty to Notify Employees of Employment Terms (ansættelsesbevisloven), an employee is entitled to demand written notice of agreements between an employer and a third party if such agreements impact the employee’s career possibilities.
This discussion has led the Danish employment minister to state that if, in a pending case, the courts were to find that a lack of written notice in such situations is not in breach of the Danish Act on Employer's Duty to Notify Employees of Employment Terms, he will propose that affected employees be given the right to compensation.
Retroactive - with a delay
The Danish parliament has decided to enforce the act with a delayed retroactive effect. From 1 July 2008, the act will apply to all non-solicitation and no-hire clauses agreed from that date. However, from 1 July 2009, the act will also apply to non-solicitation and no-hire clauses agreed prior to the act's enforcement. This means that current non-solicitation and no-hire clauses will all be declared invalid from 1 July 2009, as they do not meet the legal requirements.
On some points, the act does leave considerable doubt. It states nothing about whether share transfers are covered by the special rules that apply to business transfers. Nor does the act make clear whether an employee hired out from, for example, a consultancy firm is regarded as a “temp”.
In the future, any company that wishes to agree on non-solicitation or no-hire clauses with key employees will, in practice, be required to enter an agreement with all employees subject to the clause. This places a considerable practical and financial burden on any company. For this reason, the act is expected to bring about a considerable reduction in the use of non-solicitation and no-hire clauses - just as the Danish parliament intended.
(Act No. 460 of 17 June 2008)
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