Restrictions of a Non-Competition Agreement

Obligation to pay compensation

The legislation regarding post-employment non-compete obligations was renewed as of 1 January 2022. From the beginning of 2022, the employer must pay the employee compensation for all non-competition agreements. The amount of compensation is determined by the duration of the non-competition obligation and the employee's salary. If the limitation period does not exceed six months, the compensation must correspond to at least 40% of the employee's normal salary for the duration of the limitation period. If the limitation period is more than six months, the compensation must correspond to at least 60% of the salary for the limitation period. The liability also applies to non-competition agreements agreed with the directors, with the exception of the CEO.

Employer´s right to give notice

From the beginning of 2022, the employer can terminate the non-competition agreement with notice. Circumstances may change during the employment relationship, for example due to a change in the employee's duties, so that there is no longer a need for a non-competition agreement. In such situations, the employer has the right to terminate the non-competition agreement, subject to a period of notice, and thus to avoid the costs of the non-competition agreement, which is not necessary anymore. The period of notice must be at least one third of the limitation period agreed in the non-competition agreement, but not less than two months. Termination can no longer be made after the employee has terminated the employment contract.

Duration of the non-compete restriction

The maximum duration of the non-compete obligation is one year. This restriction does not, however, apply to employees who are in a apply to employees in a management position.

Mandatory legislation

The non-competition agreement does not bind the employee if the employment relationship has been terminated for a reason attributable to the employer. This is the situation where e.g. the employee’s employment contract is terminated due to economical or production related reasons. If, on the other hand, the employment contract is terminated as a consequence of the employee’s failure to undertake his/her work adequately, the non-competition agreement will remain in force. A non-competition agreement is void to the extent that it has been concluded in breach of provisions of law.