MyFondia VirtualLawyer
March 21, 2017

Non-compete clause – to have or not to have, that is the question…

In its pure form, the Swedish non-compete clause (NCC) is a ban under which an employee is prohibited from working for a competitor for a certain period after the termination their employment. This can be either a threat or an opportunity.

It is easy to identify with the position of the employee when you consider not being able to look for work in the field in which you have experience. Or what about the new employer who has found a dream employee, but who is not able to start work for a long time due to the NCC…

So how should employers weigh up this issue?

To begin with, you must always consider whether the use of a NCC is justified. The meaning of a NCC is reduced if it is used a non-restrictive and rigid manner. It is worth reserving the use of NCCs for employees in key positions, who have access to sensitive know-how such as business strategies, product developments or other comparable knowledge.

Next, you need to consider what other measures exist for protecting the company's business interests in addition to the NCC. For example, the employment contract should specify a confidentiality obligation, which applies even after the end of employment. In addition, the duty of loyalty applies for the entire notice period – the employer can therefore place the employee under so-called ‘quarantine’ for the duration of this period. Lastly, it is worth noting that in severe cases the Swedish Act on the Protection of Trade Secrets (1990:409) can also be applied after termination of employment.

However, if, as an employer, you feel that your business interests require the protection offered by a NCC, you must take into account a number of rules to ensure that the clause is considered valid when needed.

These rules are not provided for in Swedish law, but are included in a 2015 agreement between labour market parties. The rules are not formally binding, but rather represent a collective agreement. They also do not formally bind managing directors, contractors or consultants. However, these rules are widely accepted in the Swedish labour market. Therefore, there is a high risk that a NCC that deviates from these rules will be considered unfair and invalid.

For a NCC to be valid, I recommend that the restricted activities are defined as clearly as possible, for example, by providing a list of example activities that the company wants protection against. The prohibition period must be reasonable, and cannot normally exceed 9 months. Perhaps the most important condition is that the former employer must pay compensation. The employer must pay 60% of the employee’s salary during the prohibition period (any other income that the employee receives from non-competing work is deductible).

In sum, it is wise to think in advance whether a NCC is really needed. And if it is needed, ask for advice so that the clause is written a way that makes it valid.