New Danish legislation on restrictive covenants in employment relationships

In December 2015, a new bill was passed in the Danish Parliament which came in to effect January 1^st, 2016. It applies to every covenant on non-competition, non-solicitation of customers (non-solicitation) and non-solicitation of employees (no-hire covenants) agreed to on January 1^st, 2016 and onwards. 
 
The new bill involves a number of changes in relation to any agreement on restrictive covenants made on or after 1^st of January. Below are some of the most important changes.
  
Existing non-competition-, non-solicitation and covenants on non-solicitation of employees: 
 
– Any non-competition and non-solicitation covenant agreed to before 1st of January 2016 will remain in force in accordance with the current regulations found in i.a. the Danish Salaried Employees Act sections 18 and 18a.
 
– Effective 1^st of January 2016, it will no longer be possible to enter into agreements on non-solicitation of employees. 
 
– Any agreement on non-solicitation of employees agreed before 1^st of January 2016 will remain effective until 1^st of January 2021.      
 
Legal requirements  
 
The new act on restrictive covenants safeguards all types of employees – not just white collar workers. Some of the future main legal requirements for these provisions to be valid are:
 
– The employee must have been with the company for at least 6 months before an agreed restriction can become effective. The employee shall not be bound by any non-competition or non-solicitation covenant for more than 12 months from the effective date of termination of employment; 
 
– A non-competition covenant can only be agreed to with an employee who holds a specific and unique position of trust; 
 
– For a non-competition covenant to be enforceable, specific reasons must be given for the circumstances necessitating the restriction.
 
– Effective 1^st of January 2016, any non-solicitation covenant agreed will only apply in relation to customers who have had commercial relations with the employee within the last 12 months; 

– At resignation, the employee is to receive a list of the customers comprised by the covenant;  
 
– As from 1^st of January 2016, a combined non-competition and non-solicitation provision is referred to as a combined restrictive covenant; 
 
– Combined restrictive covenants can be enforced for no longer than 6 months and must be compensated with 60% of the salary for the first 2 months (hereafter 24% if the employee obtains another suitable position in the period of time when the covenant is valid); 
 
– Compensation for any non-competition and / or non-solicitation provision depends on the length of the particular provision; 40% for a 6-month-period and 60% for more than 6 months;
 
– It will no longer be possible to set off other income in full in the entitlement to compensation if the employee obtains another suitable position. As a minimum, the employer must pay compensation equal to the amount of 16% (up to 6 months) or 24% (up to 12 months and combined covenants) of the salary for the covenant/a combined restrictive covenant. 
 
The new legislation bears a clear political motive as Danish legislators wish to narrow employers’ usage of restrictive covenants in employment relationships.

After a period of at least three years, the effect of the legislation will be reviewed by the Danish Parliament.

Lund Elmer Sandager’s employment law department monitors the development closely.