Non-Competition Clause

	Agreements
	Liability
	Partnership Agreement
	Non-Competition Clause
	Terms of Sale and Delivery
	Business Name
	Business Format

- Dansk version

OBS - Please follow the more detailed and updated explanation in the Danish version.

Basically, there are two ways for an employer to control a former employee’s competitive conditions after discontinued employment.
Either by a non-competition clause or by non-solicitation clause.

Non-Competition Clause
A non-competition clause sets forth terms and conditions for an employee’s future carrying out of similar types of business.
Thus, a non-competition clause prevents an employee from carrying out specific types of business within a defined geographic area for a fixed period of time.

Non-Solicitation Clause
A non-solicitation clause focus on the customers.
Thus, the employee is prevented from contacting the company’s customers for a fixed period of time, but due to the nature of this clause, a specific geographic area need not be determined.

Characteristics of the two clauses:

• The non-competition clause is governed by section 18 of the Danish Salaried Employees Act and section 38 of the Danish Agreements Act.
  
• Section 18 of the Salaried Employees Act determines that an additional remuneration must be paid for the acceptance of a non-competition clause with a duration exceeding one year from the discontinuation of the employment.
  
  
• The non-competition clause shall be resolved in writing and must specify the amount paid to the employee for accepting the non-competition clause.
  
  
• Note, that an additional remuneration is a validity requirement implying that the non-competition clause cannot be submitted in excess of a year if the remuneration is not fulfilled.
  
  
• The clauses can also be of indefinite duration limiting the former employee’s profession only for as long as he/she is remunerated for the agreed limitation.
  
  
• Section 38 of the Agreements Act establishes that a non-competition clause can be set aside if it extends beyond what is required to prevent competition or if it in an unfair manner limits the bound party’s access to carrying out work.
  Thus, a non-competition clause that is not geographically specified or affects a wide range of business activity can be set aside by court and cannot be asserted.
  
  
• Justly, it must be added that section 18 of the Salaried Employees Act does not apply to managers as they are not usually regarded as salaried employees. However, this is not the case as for section 38 of the Agreements Act. The non-solicitation clause, though, is governed neither by section 18 of the Salaried Employees Act nor section 38 of the Agreements Act.
  
  
• Thus, the non-solicitation clause is solely governed by the somewhat more restricted provision of section 36 of the Agreements Act that sets forth that an agreement can be altered or set aside, partly or in full, if its assertion would be unfair or contradict honest conduct.
  
  
• It is thus more difficult to set aside a non-solicitation clause than a non-competition clause.
  
  
• Typically, non-competition and non-solicitation clauses are, and should be, subject to penalty so that the employee is ordered to pay a penalty on breach of the provisions of the clause.
  
  
• Moreover, it is often seen that non-competition and non-solicitation clauses are subject to an injunction clause to the effect that a company can file a petition for injunction without providing security for an employee’s consequential loss, should the injunction later prove unjustified.
  It is doubtful whether such a provision is valid.

Sidst opdateret: 24-06-2010

Væksthus Midtjylland