1. Definition of Restrictive Covenants
The employee is by law prohibited from engaging in competing activity causing apparent harm to the employer such as working for a competing company during the employment relationship. The employer and the employee may also agree on non-competition restrictions.
2. Types of Restrictive Covenants
a. Non-Compete Clauses
A non-compete covenant may be valid for up to six months after the termination of the employment. If the employee receives a reasonable compensation for the restrictions imposed by the non-compete covenant during the employment or thereafter, the covenant may be agreed to be valid for up to one year after the termination. The limitations regarding the length of the non-compete covenant do not apply to employees in executive positions (employees who are managing the company or an independent part of the company) or in independent positions directly comparable to such executive positions. In such cases, the non-compete covenant may be valid for a reasonable time and is null and void to the extent considered unreasonable.
b. Non-solicitation of customers
There are no statutory rules regarding non-solicitation of customers. Therefore, the use of non-solicitation clauses is less strict than the use of non-compete clauses. The use of non-solicitation clause is limited by what is considered reasonable and such clauses are null and void to the extent deemed unreasonable.
c. Non-solicitation of employees
There are no statutory rules regarding non-solicitation of employees. Therefore, the use of non-solicitation clauses is less strict than the use of non-competition obligation. The use of non-solicitation clause is limited by what is considered reasonable and to the extent deemed unreasonable, such clauses are null and void.
3. Enforcement of Restrictive Covenants—process and remedies
If an employee bound by a restrictive covenant breaches the restriction, the employer may claim damages from the employee. Instead of liability for damages, a clause on liquidated damages may be included in a non-competition agreement. The amount of the liquidated damages may not exceed the employee’s salary for six months. The limitation regarding the maximum amount of the liquidated damages for a breach of the non-compete covenant does not apply to employees in executive positions or directly comparable independent positions.
If agreed upon, the employee in a case of a breach of a non-solicitation clause may pay liquidated damages. As there are no statutory rules regarding non-solicitation clauses, there are neither maximum amounts regarding such clauses. The court may however adjust unreasonable liquidated damages or contractual penalties.
Under some circumstances, it is also possible to prevent the employee from breaching restrictive covenants by interim/precautionary measures by which the court may prohibit the employee from pursuing certain activity by issuing fine before the actual judgment in a dispute regarding the breach of restrictive covenants.
4. Use and Limitations of Garden Leave
The employee has an obligation to work throughout the notice period, unless released from his/her duties earlier by the employer. The employer may release the employee during the notice period by requesting the employee to take garden leave. The employee is entitled to receive his/her regular salary and benefits (including e.g. bonus, commission, car benefit etc.) despite the garden leave.