Sweden: Non-Compete Clauses in Light of Recent Rulings
Author: Karolina Sundqvist
In two recent rulings, the Swedish Arbitration Board for Inventorship and Non-Competition Disputes found that two non-compete clauses were not reasonable and adjusted them accordingly. The rulings may suggest a more restrictive approach to the use of non-compete clauses.
The duty of loyalty forms a central part of every employment agreement and entails, inter alia, that the employee shall not engage in competing business. The duty of loyalty normally ceases when the employment is terminated, unless the employee is bound by a non-compete clause extending beyond the termination of employment. A collective bargaining agreement (CBA) from 2015 regarding the use of non-compete clauses imposes certain requirements for the use of such clauses. The CBA from 2015 applies to employers that are bound by a CBA. For employers that are not bound by a CBA, the CBA from 2015 serves as a normative guideline for determining whether non-compete clauses are reasonable or not. Pursuant to this CBA, a prerequisite for using non-compete clauses is that there are trade secrets in the business that the employee could exploit to the company’s competitive disadvantage. The restrictive period of a non-compete clause should not exceed nine months, but may be extended to 18 months if the circumstances justify it. During the restrictive period, the employee is entitled to 60% of their previous salary. An overall assessment in the individual case determines whether the clause is reasonable.
The Swedish Arbitration Board for Inventorship and Non-Competition Disputes has recently issued two rulings related to the reasonableness of non-compete clauses. In the first ruling, a sales manager was bound by a non-compete clause that prohibited her from participating in competing business for 12 months after the termination of employment. The sales manager commenced a new position at a company whose subsidiary was engaged in competing business with the previous employer. The Board assessed the non-compete clause as reasonable, considering her position and access to sensitive information. However, the Board concluded that the restrictive period was too long and adjusted it to six months. The adjustment was justified by the economic impact on the employee; the fact that the value of the sensitive information would diminish over time; and the fact that she would mainly be working with other parts of the group that did not compete with her former employer. The Board did not elaborate on why the restrictive period was adjusted to six and not nine months.
The other ruling concerned a builder’s merchant who was bound by a non-compete clause that prohibited him from participating in competing business during six months after the termination of employment. He commenced employment as a sales manager at another building supplies company and the Board considered the non-compete clause partly justified due to his knowledge of the previous employer´s trade secrets. However, the role of the sales manager was subordinate, and he had limited insight into strategic matters. Therefore, the Board determined that the non-compete clause was not reasonable. The mobility of the labour market and the economic strain on the employee of receiving only 60% of a monthly salary of just over SEK 40,000 were mentioned as determining factors. This is despite the fact that the CBA only refers to 60% of the previous salary as reasonable compensation.
Key Action Points for Human Resources and In-House Counsel
In determining the reasonableness of a non-compete clause, an overall assessment of each individual case is essential. Staying informed about the latest developments in case law is important to understand how these clauses are evaluated and enforced.
