The Government proposes new rules regarding non-compete agreements in employment relationships

During the spring of 2008 Hjort was commissioned by the former Ministry of Labour and Social Inclusion to consider new rules for competition, customer and recruitment clauses. The commission resulted in a report prepared by lawyers Alex Borch, Else Bugge Fougner, Claude A. Lenth and Marie Nesvik delivered during the autumn of 2008, proposing significant changes. Recently the Government has presented a proposal for new legislation which builds on proposals in our report, including that new rules should be incorporated into a new chapter in the Working Environment Act.

Businesspeople Leaving an Office Building

The main content of the proposal can be summarized as follows:

Competition clauses

Competition clauses are agreements that restrict an employee's right to take up position with a competitor or start, operate or participate in competitive activities after the termination of employment. Competition clauses may according to the proposal only be agreed when the employer has a particular need for protection against competition. Competition clauses can be entered into for a maximum of one year and the employer shall pay compensation. The compensation shall basically constitute full salary but with a maximum of 18 G (approximately MNOK 1.6).

Until now the main provisions regulating competition clauses have been placed in the Agreement Act section 38. The main provision in section 38 first paragraph is continued, but will hereafter apply primarily outside employment relationships, while the current second and third paragraphs are incorporated into the Working Environment Act.

Customer Clauses

Customer clauses are agreements that restrict the employee’s right to contact the employer’s customers after the termination of employment. Customer Clauses can according to the proposal only be agreed for customers that the employee has had contact with or responsibility for the last year before the employment is terminated. The clause must contain information about which customers it applies to and may be entered into for a maximum of one year. A customer clause cannot prevent customers from making contact with the employee if they want to.

Recruitment clauses

Recruitment clauses that prevent an employee from recruiting former colleagues after the termination of employment, are not included in the proposal. Such recruitment clauses will thus continue to be valid. An employer, however, will generally not be able to enter into agreements with other businesses that prevent or restrict the employee’s opportunity to take employment in another business. Such recruitment clauses can only be agreed in case of ongoing negotiations regarding a transfer of undertaking or if a transfer has just taken place.

The chief executive

The new restrictions on the right to agree competition clauses and customer clauses can be deviated from in agreement with the chief executive, provided severance pay is given. A competition clause agreed with the chief executive can still be set aside in whole or in part based on the Agreement Act section 38.

Entry into force and transitional rules

It has not yet been decided when the new rules will enter into force. They will apply immediately to new agreements, but not until a year later for existing agreements. This is intended to give employers time to assess and adapt such agreements to the new rules. We will be happy to assist with assessing the need to amend existing competition clauses and customer clauses.

Prop. 85 L (2014-2015) can be read in its entirety here (in Norwegian):