Clauses in your employment contract: Here are the rules

If you have a clause in your employment contract, it limits which jobs you can apply for.

The two most common clauses are non-competition clauses and non-solicitation clauses, which prohibit you from seeking employment in your current industry and with former clients and business partners.

If you cannot avoid having the clauses written into your contract, you can negotiate to have their scope limited. You can read more about that here.

If you're uncertain about a clause, you can also have your employment contract reviewed by IDA's legal advisers.

What is a clause in an employment contract?

A clause is a provision in your employment contract that limits your options if you want to change jobs.

The purpose of a clause is to restrict you from using knowledge of your current employer in a future employment relationship for a competitor.

Clauses therefore typically only apply to specially trusted employees who may impose significant competition on their employer if they switch to a competitor. This could be, for example, employees who have insight into:

Accounts
Supplier agreements
Customer records
Discount schemes
Price agreements

How long does a clause apply?

Non-competition clauses and non-solicitation clauses apply for a maximum of 12 months.

If you have both a non-competition clause and a non-solicitation clause, they can have a maximum duration of 6 months.

What is a non-competition clause?

A non-competition clause prohibits you from being employed or having a financial interest in a business that competes with your employer for as long as the clause is in effect.

You cannot therefore work for a competing company as an employee or consultant, and you cannot own a competing company. It is your employer who defines when something is a competing company.

If you have a non-competition clause, you can, on the other hand, work for former customers and business partners, as long as they are not competitors of your employer.

Your non-competition clause is no longer valid if you are unfairly dismissed, or if you are terminated for reasons related to the company's circumstances, such as restructuring.

For a non-competition clause to be valid, the following criteria must be met:

You must have a particularly trusted position and be able to impose significant competition on your current employer.
You must be notified in writing of what makes the non-competition clause necessary. For example, that you have access to accounts, supplier arrangements or the like.
The clause must contain the agreed compensation that you will receive for as long as the clause is valid.
The non-competition clause can apply for a maximum of 12 months.
You must have been employed for at least 6 months when you leave your position.

Compensation for a non-competition clause

You are entitled to compensation for your clause when you leave your position.

The compensation depends on the duration of the clause:

Clause of up to 6 months: You are entitled to compensation of at least 40 percent of your salary. If you get a new job before the clause expires, the compensation drops to 16 percent.
Clause of 6-12 months: You are entitled to compensation of at least 60 percent of your salary. If you get a new job before the clause expires, the compensation drops to 24 percent of your salary.

Regardless of the duration of your clause, you are entitled to a payment of the first two 2 months as a lump sum upon leaving your position.

Your compensation must be calculated on the basis of your fixed predictable salary. This means your basic salary, pension, bonus, shift allowance/on-call allowance as well as the value of a free car, telephone and other benefits.

Your employer can terminate your non-competition clause and thus avoid paying your compensation. This must be done with 1 month's notice.

If you have been employed for at least 3 months and resign no later than 6 months after your non-competition clause has been terminated, you are still entitled to your lump sum of 2 months' compensation.

What is a non-solicitation clause?

A non-solicitation clause prohibits you from being employed by or having direct or indirect business relations with your employer's customers and business partners.

A non-solicitation clause only applies to customers and business partners with whom you have had contact for 1 year up to leaving your position.

For a non-solicitation clause to be valid, the following criteria must be met:

The clause must be agreed in writing.
The clause must have a maximum duration of 12 months.
The clause may only restrict you from working with customers and business partners with whom you yourself have had contact for 1 year up to your resignation.
You must have been employed for a minimum of 6 months before the non-solicitation clause applies.
Upon your resignation, you must receive a list of the customers covered by the clause.
The clause must contain the agreed compensation that you will receive as long as the clause is valid.

Compensation for a non-solicitation clause

You are entitled to compensation for your clause when you resign.

The compensation depends on the duration of the clause:

Clause of up to 6 months: You are entitled to compensation of at least 40 percent of your salary. If you get a new job before the clause expires, the compensation drops to 16 percent
Clause of 6-12 months: You are entitled to compensation of at least 60 percent of your salary. If you get a new job before the clause expires, the compensation drops to 24 percent of your salary

Regardless of the duration of your clause, you are entitled to a payment of the first two 2 months as a lump sum upon leaving your position.

If you do not look for work after your resignation, you may lose your right to compensation.

Your employer can terminate your non-solicitation clause and thus avoid paying your compensation. This must be done with 1 month's notice. If you have been employed for at least 3 months and leave your position no later than 6 months after your clause has been terminated, you are still entitled to your lump sum of 2 months' compensation.

What are combined clauses?

A combined clause contains both a non-competition clause and a non-solicitation clause, and a combined clause must therefore meet the conditions for both non-competition clauses and non-solicitation clauses.

If just one of the validity conditions is not met, the combined clause is invalid.

In addition, it is important to note that a combined clause cannot bind you for more than 6 months after your resignation.

Your employer can terminate your combined clause and thus avoid paying your compensation. This must be done with 1 month's notice.

Compensation for a combined clause

You are entitled to compensation for your clause when you leave your position.

If you do not have a new job, you must be compensated for 60 percent of your salary, but if you find a new job in your field, the compensation drops to 24 percent.

You must receive a payout of the first 2 months' compensation together with your last month's salary when you leave your position.

You must be aware that you have a loss limitation obligation during the period in which your combined clause applies. This means that you need to look for suitable work. If you are employed in a job outside your specialist area - for example in unskilled work - your compensation will not be reduced.

If you are terminated or resign and have a combined clause

The nature of your termination affects the validity of a combined clause in your contract. If your employment relationship ends because you resign or breach the employment relationship, the combined clause remains valid.

However, if your employment is terminated and you have not given reasonable cause to it, the non-competition clause of the combined clause will lapse, while your non-solicitation clause will remain valid.

Examples where you have given reasonable cause:

You yourself have resigned
You have been dismissed because you have breached the employment relationship.

Examples where you have not given reasonable cause:

You have resigned because your employer has not fulfilled its conditions. For example, you have not received a salary.
You have been dismissed due to circumstances in the company: e.g. for cutting costs or due to a reorganisation.

Even if the non-competition clause expires, you are still entitled to the lump sum of 2 months' compensation, as you are still bound by the non-solicitation clause. You are also entitled to compensation for the remainder of the clause period.

What is a training clause?

A training clause typically obliges you to repay part of the costs for training you have received if you resign from your position within a certain period of time after the training has ended.

A training clause should not be added if the training in question is of a general/unspecialised nature and necessary for you to maintain your skills.

A training clause typically contains:

What training the clause contains
Duration of the clause
Which expenses your employer pays and what you pay yourself
What must be repaid if you resign
How to repay the expenses

If your employer wants you to sign a contract with a training clause, you should always contact IDA's legal department before signing.

Invalid clauses: Job clauses and employee clauses

From 1 January 2021, job clauses and employee clauses have been invalid, and it is illegal to enter into new clauses.

If you have either a job clause or an employee clause in your employment contract, you can disregard it.

How to negotiate contract clauses

When given the chance, negotiating to completely avoid certain clauses in your employment contract is the preferred approach, as these clauses can hinder your ability to pursue new job opportunities.

However, if the employer insists on including a clause, you can attempt to limit its impact using the following strategies:

Ask about the employer's primary concerns and tailor the clause accordingly.
Make the clause period as short as possible.

Agree that the clause will only come into effect after you have been employed for a few years.
Ask your employer to specify which customers or competitors the clause applies to.
Agree to compensation beyond the minimum rates of 60 and 40 percent of your salary.
Steer clear of conventional fines in your contract. These fines act as financial penalties that you must pay if you violate the clause.

If the employer wants to include a clause in your employment contract, you should always have it read through by IDA's legal advisers.

What are the consequences if you breach your clause?

If you breach a clause in your contract, your former employer has two sanction options:

An injunction: Your former employer can ask the bailiff's court (Fogedretten) to grant an injunction, meaning that you will be banned from taking up employment that is in breach of your clause. If the injunction is granted, you must resign from your position with immediate effect.
An agreed fine: In your employment contract, it may be agreed that you must pay an agreed fine if you break your clause. If you don't want to pay the fine, your former employer can take legal action against you. A court can reduce your conventional fine if it is judged to be unreasonably high, but this rarely happens.

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