Sweden reduces non-compete periods
The confederation of Swedish Enterprise (Swe: Svenskt Näringsliv) and the Federation of Salaried Employees in Industry and Services (Swe: PTK) have negotiated a new collective bargaining agreement on non-compete clauses (“the New Non-Compete Agreement”) that replaces the previous agreement from 1969. The New Non-Compete Agreement will apply to non-compete clauses entered into by employers bound by it as of 1 December 2015.
The New Non-Compete Agreement governs employers’ use of non-compete clauses in employment contracts. It is not applicable to non-solicitation or confidentiality clauses. The scope for using non-compete clauses is wider under the New Non-Compete Agreement than under the previous agreement from 1969. All companies that rely on trade secrets may now use non-compete clauses and given the broad concept of “trade secrets” almost all companies will be able to apply non-compete clauses. However, the use of non-compete clauses shall continue to be restrictive and only used for certain positions.
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. Thus, compared to the previous agreement from 1969 that allowed a maximum restricted period of 24 months, it can generally be said that the restricted period through the New Non-Compete Agreement has been shortened.
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.
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.
The previous agreement from 1969 has been used extensively by the courts when determining whether a non-compete clause should be deemed unreasonable under Section 38 of the Swedish Contracts Act. It may, therefore, be expected that the courts will consider the New Non-Compete Agreement when assessing non-compete clauses in the future. Thus, the New Non-Compete Agreement is expected to be of significance also for employers that are not bound by a collective bargaining agreement. Consequently, all employers are advised to consider the New Non-Compete agreement prior to including non-compete clauses in their employment contracts.
First published on Ius Laboris Global HR.