Denmark: Bill Would Extend Solicitation, Competition Clauses to Entire Workforce

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By Marcus Hoy

April 28—Proposed legislation to overhaul the rules on employee competition and solicitation clauses currently contains few obvious benefits for employers, although amendments to the draft will likely be considered before its passage, a Danish attorney told Bloomberg BNA April 16.

The bill, the result of an agreement between the Confederation of Danish Employers and the Danish Confederation of Trade Unions, will extend the use of competition and solicitation clauses from the white collar sector to the entire workforce and introduce stricter limits on their duration. Under these new rules, a 12-month limit will apply to all agreements, reduced to six months if a former employee is covered by both a competition and a solicitation agreement.

The proposal also amends the rules on compensation payable by the former employer. Under the new rules, compensation will vary between 16 and 60 percent of the employee's salary at retirement age, as opposed to the current fixed rate of 50 percent. Compensation will be set at 40 percent for clauses effective up to six months and 60 percent for clauses with durations of between six and 12 months, although this sum would be reduced significantly if the employee were to take another job.

The bill will also tighten the definition of which employees can be subject to the clauses—while the current rules refer to “especially entrusted” employees, the proposed new wording would include employees who are “entirely entrusted” and require that their specific circumstances be detailed in writing—and cover former company directors, whose confidentiality obligations are currently contained in the Contracts Act (781/1996).

‘No Obvious Benefits for Employers'

“In recent years there has been a development in the use of competition and solicitation clauses, and many companies are using them to a greater extent than originally envisaged,” Soren Narv Pedersen, partner at the Bird & Bird law firm, told Bloomberg BNA in an April 16 statement. “As a rule, such clauses should only be imposed on particularly entrusted employees. However, in practice there are no specific requirements as to when an employee can be defined in this manner, and many companies impose clauses even though the employee may not be an obvious candidate for them.”

“The problems with the current rules are such that they are used too frequently and often impose unnecessary obligations on what employees can do during the clause's duration,” Narv Pedersen said. “Of course, companies are to some extent worried about whether they will be able to protect their products and retain good employees to the same degree under the new rules.”

“At first glance, it is difficult to spot obvious benefits for employers,” Narv Pedersen continued. “It appears that the new rules could somewhat increase employers' administrative burden due to the new compensation model. Under the new rules, the paid compensation will be dependent on the clause in question and its duration, though the compensation rate can potentially be lower than it is today.”

“It is not our expectation that the bill will be adopted in its current format,” Narv Pedersen said. “Employers' organizations will probably work hard for an easing of the bill's requirements so that companies will have better opportunities to engage with their employees.”

While the bill is due to become law July 1, Narv Pedersen said, its enactment could be derailed if the government were to call a snap election in May. A general election is currently scheduled to be held on Sept. 14, though the left-leaning government has the option of calling it earlier. Should an early election be called, the bill would be delayed and could be redrafted if the right-leaning opposition took power.

‘No Evidence of a Problem'

In an April 16 statement provided to Bloomberg BNA, Confederation of Danish Employers (DA) senior adviser Lise E. Bardenfleth said that her organization has been “very critical” of the proposed changes, but recognizes that a political majority supported their enactment.

“We consider the current rules on [competition and solicitation] clauses to be balanced in relation to both the employee and the employer,” Bardenfleth said. “The DA's view is that there is no evidence to show that the use of employment clauses is a problem or that they have been used unnecessarily.”

To contact the reporter on this story: Marcus Hoy in Copenhagen at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

The draft bill is available at http://prodstoragehoeringspo.blob.core.windows.net/d42fadaa-4495-4977-b8da-d15df8e3f9ad/Lovforslag%20i%20EKSTERN%20h%C3%B8ring-1.pdf, a summary prepared by Bird & Bird at http://www.twobirds.com/da/news/articles/2015/denmark/ny-lov-om-ansaettelsesklausuler-sendt-i-hoering, both in Danish.

For more information on Danish HR law and regulation, see the Denmark primer.