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HR Nordic
Restrictive covenantsLoyalty obligationsBackground checks
May 2017
PwC
Welcome to HR Nordic
HR Cluster for Nordic organisations
HR law, social security and personal tax
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On spot HR legal topics
Learning and sharing
2
PwC
Loyality obligations
3
PwC
Loyalty obligations
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Denmark
Loyalty obligationsContractual relationships generally entail a duty for the contracting parties to act loyally to each other.
Duty of loyalty:
• Inter partes• Externally – towards clients etc.• Internally – towards
management and colleagues
Same as in Norway.
Sweden Norway
Loyalty obligationsContractual relationships generally entail a duty for the contracting parties to act loyally to each other.
Duty of loyalty• Hidden clause• Put employer’s interest before
own• Confidentiality• Non-competition• Non-solicitation• Non-slander
Same as in Norway.
Loyalty obligationsContractual relationships generally entail a duty for the contracting parties to act loyally to each other.
The duty of loyalty in employment relationships involves both an obligation to refrain from acts in violation of the employer's interest, and also an obligation to act to safeguard the employer's interests.
The extent of loyalty may vary depending on the employee's position. In general, stricter norms applies for employees in senior positions.
Employees must also act loyally outside working hours.
PwC
Knowhow/ Intellectual Property Rights
5
Denmark
Knowhow/Intellectual property rightsThe same definition as in Norway.
The protection is not regulated through a non-competition clause and the regulation of non-competition clauses does not apply to knowhow and intellectual property.
All intellectual property rights arising out of the employment are normally agreed to be considered assigned to the company to the widest extent permitted by Danish law and the employee shall not be entitled to any specific payment for any intellectual property right.
Sweden Norway
Knowhow/Intellectual property rights
The same definition as in Norway.
The protection of knowhow in can e.g. be regulated in non-competition agreements, through confidentiality agreements, via the employee’s duty of loyalty etc.
All IPR arising out of the employment are normally agreed to be considered assigned to the company to the widest extent permitted by Swedish law.
The employee may be entitled to compensation for inventions.
KnowhowDefinition: A collection of technical details, knowledge and experience that together can be crucial to a company’s competitiveness. The term must be distinguished from general knowledge which falls outside of the term.
The protection of knowhow in can e.g. be regulated in non-competition agreements, through confidentiality agreements, via the employee’s duty of loyalty etc.
We find reason to mention that according to Dir. (EU) 2016/943, protection of undisclosed know-how and trade secrets should be implemented under national law by June 9th 2018.
PwC
Restrictive covenants
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PwC
Norway
7May 2014
Norway: Agreements restricting competition in employment relationships
As a main rule, the employee is free to act in competition with (former) employer after the employment is ended. In accordance with the principle of contractual freedom, restrictions against competition might in some cases be agreed on.
Until 2016, Norway's Contract Act of 1918 contained provisions restricting the contractual freedom. As of January 1st 2016, new provisions on non-competition-, customer- and non-recruitment clauses in employment relationships entered into force in the Working Environment Act (“WEA”) chapter 14 A.
A non-compete clause is an agreement between the employer and the employee for a certain period, limiting the employee’s to be employed by another employer, participate, or engage in other competing businesses after the termination of the employment relationship.
8May 2014
Norway: Agreements restricting competition in employment relationships (cont.)
The provisions in Norway's Contract Act of 1918 was amended simultaneously as the new provisions entered into force.
The purpose of the provisions is to ensure free competition and mobility in the labour market. At the same time the needs of undertakings to protect themselves against employees utilizing trade secrets, know-how etc. developed in the undertaking, after the employment relationship is ended, should be safeguarded.
Agreements to restrict competition in employment relationships can be divided into 3 categories: 1. Non-compete clauses, 2. Non-solicitation of customers, 3. Non-solicitation of employees.
9May 2014
Norway: Non-recruitments clauses
Non-recruitments clauses
Definition
Two main types historically:
1. Agreements with the aim to prevent the employee to contribute/simulate other employees to leave their employment relationship.
2.Agreements between undertakings to not employ or attempt to employ each others employees. Such agreements are not allowed anymore by WEA Section 14 A-6.
10May 2014
Norway: Non-solicitation of employees clause
Restrictions
An employer may not enter into a non-solicitation of employees clause with other employers.
A non-solicitation of employees clause may nevertheless be entered into in connection with negotiations on transfer of undertakings, and invoked during the negotiations and for up to six months after completion of the negotiations if they do not succeed.
A non-solicitation of employees clause may also be entered into from the date of transfer of the undertakings and invoked for up to six months if the employer has informed all the affected employees in writing.
11May 2014
Norway: Non-solicitation of customer clauses
Definition
An agreement between the employer and the employee limiting the employee’s possibility to contact the employer’s costumers for a certain period of time after the employment relationship is ended.
12May 2014
Non- compete clauses and Non-solicitation of customers clauses - Exception
ExceptionThe provisions concerning non- competition clauses and customer clauses shall not apply to the undertaking’s chief executive if he or she renounces such rights before resigning in return for severance pay.
Agreements with the chief executive regarding non-competition and non-solicitation of customers will however be comprised by the regulations of Norway's Contract Act of 1918 Section 36 and Section 38. As such, the contractual freedom is restricted, and the clauses may adjusted/declared void in accordance with these provisions.
13May 2014
PwC
Agreements restricting competition in employment relationships
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Norway
Non-competition clauses New rules
The agreement In order to be valid, a non-compete clause must be entered into in writing.
The non-competition clause may be entered into in connection with the start of the employment, during the employment, or upon termination of the employment.
Requirements A non-compete clause becomes void if the requirement regarding a written statement from the employer is not met within certain time limits. The statement must define whether and to what extent the clause will be invoked.
A non-compete clause may only be invoked as far as it is necessary in order to safeguard the employer’s particular need for protection against competition.
Restrictions A non-competition clause may not be invoked on dismissal by the employer unless the dismissal is objectively justified on the basis of circumstances relating to the employee.
The same applies if the employer owing to breach of obligations in the employment relationship has given the employee reasonablegrounds to terminate the employment relationship.
Termination The employer may terminate a non-competition clause in writing at any time during the employment.
Such termination may however not occur during the period when the employer is bound by a written statement. Following termination of the employment, the employer and the employee may enter into a written agreement that a non-competition clause shall no longer apply.
Compensation The employer shall pay compensation to the employee. The compensation shall be equivalent to 100 % of the employee’s salary up to 8 times the National Insurance Basic Amount (“NIBA”), and thereafter a minimum of 70 % of the employee’s salary in excess of 8 times the NIBA. (1 x NIBA = NOK 92 576 as of May 2016).
The compensation shall be calculated on the basis of salary earned during the 12 months immediately prior to the date of notice or summary dismissal. The compensation may be limited to 12 times the NIBA.
Salary, bonus, overtime pay, commission-based pay, vacation pay etc. shall as a main rule be included in the basis for calculating the compensation.
Deductions equal to a maximum of half the compensation may be made in respect of salary or income received or earned by the employee during the period the non-compete clause is in effect.
The employer may require the employee to provide information of salary or income from employment during the period.
If the employee fails to comply with this requirement, the employer may withhold compensation until the information is provided.
PwC
Agreements restricting competition in employment relationships (continued)
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Norway
Non-solicitation of customers clauses
New rules
The agreement Non-solicitation of customer clauses shall be entered into in writing.
Requirements A customer clause may only apply to customers with whom the employee has had contact or for whom he has been responsible during the year immediately prior to providing the written statement regarding the enforcement of the non-solicitation of customers clause.
Written statement In order to enforce the non-solicitation of customers clause, the employer must make a written statement to the employee in question.
The written statement should contain the duration of the costumer clause and the costumers who are comprised by the clause. Further, the employer must make a specific assessment regarding whether or not the requirement of affiliation is met for each costumer to be covered by the non-solicitation of costumer clause.
Time limitation Customer clauses shall apply for a maximum of one year after termination of employment.
Termination The employer may terminate a customer clause in writing at any time during the employment.
Such termination may however not occur during the period when the employer is bound by a written statement. Following termination of the employment, the employer and the employee may enter into a written agreement that a customer clause shall no longer apply.
Compensation There is no legal requirement that the employee shall receive compensation in order for a customer clause to be valid.
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Denmark
16May 2014
Denmark: Agreements restricting competition in employment relationships
A new bill on Employment Clauses entered into force on 1 January 2016. It applies to restrictive clauses agreed on or after this date.
Definition:• A non-compete clause prohibits an employee from competing with the
employer
• A non-solicitation of customers clause prohibits the employee from having any business relationship with the employer's customers or other business associates
17May 2014
Denmark: Non-solicitation of employees clause
• A non-solicitation of employees clause can be either between two companies obligating the parties not to solicit or recruit each others employees, or between a company and an employee, obligating the employee not to solicit or recruit any colleagues, if he/she leaves the company.
Who is protected under the new rules?Most of the Danish regulation on restrictive clauses was only applicable to salaried employees.
However, under the new rules both salaried employees and blue-collar workers enjoys protection.
For executives (not status as wage earner) the same regulation applies as before, but section 38,2 from the Contracts Act has been transferred to the new Act on Employment Clauses.
18May 2014
Denmark: Non-solicitation of employees clause
• A non-solicitation of employees clause entered as of 1 January 2016 is invalid (except in the of event of a transfer og undertaking)
• A non-solicitation clause entered before 1 January 2016 is valid until 31 December 2020.
• Non-solicitation and non-competition clauses entered before 1 January 2016 are treated in accordance with the regulation before 1 January 2016 (§§ 18,18a in the Salaried Employees Act and the Contracts Act § 38,2.)
19May 2014
PwC
Agreements restricting competition in employment relationships
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Denmark
New rulesThe agreement The clause must be agreed in writing and provide for specific terms or it is considered invalid.Period of continuous employment
Employee must have completed at least 6 months' continuous employment at the time of termination to be valid. Note that if the employee has been employed for 3 months at the time of termination, he is entitled to the lump-sum of 2 months if termination of the clause.
Term Term can be no more than 12 months, commencing from the termination of the employment, or 6 months if it is a combined clause.
Compensation The size of the compensation:If the term is up to 6 months, the compensation must be at least 40% of monthly salary.If term is more than 6 months, compensation must be at least equal to 60% of the salary per month.If the employee is restricted by a combined clause, compensation must be at least 60% of monthly salary.
Compensation If the employee finds other suitable employment during the term of the non-competition or non-solicitation of customers clause, the employee is entitled to a lower compensation during terms of other suitable employment.
During terms of other suitable employment, the employee is entitled to compensation of at least 16% if the employee was originally entitled to at least 40% of the salary, and compensation of at least 24% if the employee was originally entitled to at least 60% of the salary.
However, regardless of any new income, the employee is always entitled to the high level of compensation (40% or 60%) during the first two months of the term of a non-competition clause or non-solicitation of customers clause (the lump sum).
Trusted position – only applicable for non-competition clauses
A non-competition clause may only be imposed on an employee holding a particularly trusted position. Accordingly, only employees who hold a particularly trusted position and who are trusted with confidential information can be subject to a valid non-competition clause.
The employer must inform the employee in writing why a non-competition clause is required.
Termination A non-competition clause cannot be enforced against an employee who has been dismissed by the employer without having given reasonable cause for the dismissal, or who resigns from his/her position and the employers’ omission to perform it’s obligations has given the employee reasonable cause for such resignation. The employee is entitled to the lump sum even if terminated even though not bound.
Relevant customers – only applicable for non-solicitation of customers clauses
A non-solicitation of customers clause may only be enforced in relation to customers with whom the employee has been doing business himself/herself within the past 12 months. The employer must draft a specific list of customers covered by the clause. Any mistake can lead to invalid clause.It is no longer possible to make a list of relevant customers that have not been in contact with the employee.
PwC
Sweden
21May 2014
Sweden: Agreements restricting competition in employment relationships
Section 38 of the Contracts Act (1915:218) contains a special provision regarding non-compete clauses. The undertaking shall not bind the employee to the extent that the undertaking is more extensive than may be considered reasonable.
Collective agreement on non-competition clauses have “general applicability” Restrictive case law on non-competition clauses.
Legal definition: • Not engage in a certain type of business• Not take up employment with a person conducting such a business
22May 2014
Sweden: Agreements restricting competition in employment relationships
Definition in general CBA same as in Trade Secrets Act:
Information concerning the business or operational circumstances of a trader's business which the trader keeps secret and the disclosure of which is likely to cause damage to him in respect of competition.
“Information” means both such information which has been documented in any form, including drawings, models and other similar technical prototypes, and an individual persons' knowledge of a specific circumstance, notwithstanding that it has not been documented in any particular manner.
23May 2014
Sweden: Agreements restricting competition in employment relationships
• CBA does not apply to CEO etc. However case law extends to CEO.
• A non-solicitation of employees clause can be either between two companies obligating the parties not to solicit or recruit each others employees, or between a company and an employee, obligating the employee not to solicit or recruit any colleagues, if he/she leaves the company.
• No legislation or case law on B2B-clauses
• No requirement to pay compensation
24May 2014
Sweden: Non-solicitation of customer clauses
Definition
An agreement between the employer and the employee limiting the employee’s possibility to contact the employer’s costumers for a certain period of time after the employment relationship is ended.
25May 2014
PwC
Agreements restricting competition in employment relationships
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Sweden
New rules in general CBAThe agreement The confederation of Swedish Enterprise and the Federation of Salaried Employees in Industry and Services (Swe: PTK) have negotiated
a new collective bargaining agreement on non-compete clauses that replaces the previous agreement from 1969. The New Non-CompeteAgreement will apply to non-compete clauses entered into by employers bound by it as of 1 December 2015. It is not applicable to non-solicitation or confidentiality clauses.
Period of continuous employment Non-competition clauses for employees who are newly graduated at the time of employment should not be applied earlier than six months after the employment date, unless special reasons speak otherwise.
Term As a main rule, the restricted period may not exceed 18 months past the last day of employment. If the period during which the trade secret constitutes a risk in relation to competitors is short, the restricted period should not exceed 9 months. The restricted period may only be extended beyond 18 months under special circumstances.
Applicability The non-competition undertaking shall not apply when the company terminates the agreement due to redundancy or when the employeeleaves the employment due to the company’s material breach of its obligations to the employee.During the employment, the company may unilaterally limit or revoke the non-competition clause. In such case, the company shall notify the employee of the modification in writing.The employee should notify the company if the employee intends to terminate the employment. Upon the employee’s request, the company shall inform, not later than within two weeks, whether, and to which extent, the non-competition clause shall apply and the term of applicability of the clause. The company may not unilaterally modify this information.
Compensation The compensation for loss of income is capped at 60 percent of the employee's average monthly income and is to be paid during the entire restricted period. The compensation is dependent on the loss of income caused by the non-compete restriction, and the employee is obliged to try to mitigate the loss of income e.g. by applying for a new job.In the event of summary dismissal, the company may, following deliberation, withdraw the compensation in whole or in part.
Sanction The penalty for an employee’s breach of a non-compete clause must be in proportion to the employee's salary. Normally, the penalty should not exceed six times the employee’s average monthly income for each breach. In addition, the New Non-Compete Agreement introduces a possibility to claim recurring penalty if the employee's breach is of an ongoing nature.
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Background Checks
Consequences of providing falseinformation during the recruitmentprocess
27May 2014
PwC
Background checks
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Denmark Sweden Norway
Difference: Before and after the employment agreement is signed
Before signing:• No legislation• Free to ask for information• Free to reject non-cooperative
candidate
After signing:• Reasonability - balancing of
interests• Just cause for termination of
employment?
Before and after signingemployment contract:
• All relevant information can becollected in regards to the employee’s capability of holding the position
• Restriction on askinginformation on the candidatshealth, legal as far as valid reason (Discrimination Act)
• Restriction on taking intoaccount information protectedby anti-discrimination acts(Diskrimineringsloven)
Before and after signingemployment contract:
• All relevant information can becollected in regards to the employee’s capability of holding the position
• Restriction on askinginformation on the candidatshealth(Helbredsoplysningsloven)
• Restriction on taking intoaccount information protectedby anti-discrimination acts
• (Forskelsbehandlingsloven, Ligebehandlingsloven)
PwC
Background checks
29
Denmark Sweden Norway
Difference to public access, confidential sources and new sources
Public access:• Google and social media e.g.
Facebook, Twitter, Linkedin.• Contact references• Grades from university, high
school, etc.
Confidential sources:• Criminal records• Information from
Försäkringskassan re. sick pay and care of sick child
• Patient record
New sources:• Medical examinations• Tests (IQ, social, logic etc.)
Difference to public access, confidential sources and new sources
Public access:• Google and social media e.g.
Facebook, Twitter, Linkedin.• Contact references• Grades from university, high
school, etc.
Confidential sources:• Criminal records• Information from the National
Insurance Scheme, re. sick pay and care of sick child
• Patient record
New sources:• Medical examinations• Tests (IQ, social, logic etc.)
Difference to public access, confidential sources and new sources
Public access:• Google and social media e.g.
Facebook, Twitter, Linkedin.• Contact referencesOther sources:• Grades from university, high
school, etc.• Criminal records
New sources:• Tests (IQ, social, logic etc.)
PwC
Background checks
30
Denmark Sweden Norway
Note:
• Risk for unlawful discrimination due to:
• Parental leave• Disability
• Personal Data Act applies• New Rules 24th May 2018 GDPR
Note:
• Risk for unlawful discrimination due to:
• Parental leave• Disability
• Personal Data Act applies• New Rules 24th May 2018 GDPR
Note:
• Risk for unlawful discrimination due to:
• Parental leave• Disability
• Personal Data Act applies• New Rules 24th May 2018 GDPR
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Cases
31
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Helga Aune
Thomas Ogard
Jeanette Vallat
