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NON-COMPETE CLAUSES

Use of Non-Competition Clause in Employment Agreements

 

Including a non-competition clause to any employment agreement might feel tempting in order to protect the employer’s trade secrets, competitive position and other interests. Under Finnish law, however, the situation is not that straightforward.

 

According to the Finnish Employment Contracts Act, non-competition clauses may be used only if there exist particularly weighty reasons that relate to the operations of the employer. The existence of such reasons is assessed considering, among other factors, (i) the nature of the employer's operations, (ii) any need for protection related to keeping a trade secret or to special training given to the employee by the employer, and (iii) the employee's status and duties.

 

The permitted effects of the non-competition clause are (i) limiting the employee's right to conclude an employment contract with an employer who engages in operations competing with the first-mentioned employer, and (ii)  the employee's right to engage in such operations on his or her own account. The limitations apply as from the termination date of the employment agreement.

 

The non-competition obligation may restrict the foregoing possibilities of the employee for a maximum period of 6 months. However, if the employee can be deemed to receive reasonable compensation for the restrictions imposed by the non-competition obligation, the period can be extended to 12 months. In relation to breaches of the obligation, the clause can include either regular liability clause for damage caused or a liquidated damages clause. The amount of liquidated damages may not, however, exceed the amount of salary the employee has received during the 6 months preceding the end of the employee's employment relationship.

 

Another factor to be observed is that the non-competition clause does not bind the employee if the employment relationship has been terminated for a reason attributable to the employer. This includes, for example, the so-called collective termination grounds and also breaches of agreement by the employer.

 

In relation to directors, the Employment Contracts Act states that restrictions on the duration of the obligation (6 / 12 months) and the maximum limit on liquidated damages (6 months’ salary) do not apply to employees who, in view of their duties and status, are deemed to be engaged in the direction of the company or an independent part thereof or to have an independent status immediately comparable to such director’s duties.

 

If the non-competition clause does not meet the requirements set out in the Employment Contracts Act, such clause is directly invalid and cannot be enforced against the employee. For this reason, a particular issue to consider is whether a slightly wider confidentiality clause would do the same trick in terms of protecting the employer’s commercial interests.

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