Non-solicitation clauses can be just as restrictive as non-compete clauses

Moving to a new organisation can create expectations and opportunities – but also obligations towards your former employer. One of these potential obligations is the non-solicitation clause, which can restrict the ability to solicit former colleagues or customers to the new company. A customer non-solicitation clause can be assimilated to a non-compete clause when it restricts the employee’s ability to practice their profession or to operate in the same sector.

What is a non-solicitation clause? 

There are no explicit provisions on non-solicitation in law or in collective agreements, nor is there a single precise and formal definition. In general, the purpose of a non-solicitation clause is to prevent an employee from actively soliciting other employees or customers to work for a new employer or to become their customer.

A non-solicitation and non-recruitment clause are often related, but they are not exactly the same thing. A non-recruitment clause in an employment contract refers to an agreement whereby an employee is not allowed to recruit the employer’s employees, for example when establishing their own company or when acting as a recruiter in their new job.

Non-solicitation is based on an agreement between the employee and the employer, usually an explicit clause in the employment contract. The scope of a non-solicitation clause can vary, but the condition must still be reasonable in accordance with the Contracts Act. For a non-solicitation clause to be considered reasonable, it should at least have a fixed term.

Non-solicitation agreements often include a contractual penalty. The penalties are often severe, which makes the prohibition a particularly binding condition. It is important for the employee to understand the terms and implications of the agreement before accepting it, so that they can assess whether it is reasonable.

Assimilated to a non-compete clause

Unlike non-solicitation, non-compete agreements are explicitly provided for in the Employment Contracts Act.

According to the Employment Contracts Act, an agreement of non-competition is an agreement between an employer and an employee that limits the employee’s right to conclude an employment contract for work starting after the employment relationship has ceased with another employer engaged in competing operations or to engage in such operations on their own account.

According to the Act, a post-employment non-compete agreement can only be concluded for a particularly weighty reason.

When assessing the weightiness of the reasons for a non-compete agreement, the nature of the employer’s operations and the need for protection are considered. The need for protection may be related, for example, to keeping a trade secret or to special training given to the employee by the employer. The assessment also takes into account the employee’s status, duties and other similar factors.

Government proposal 57/1990, which led to the enactment of the Act, states that the permissibility of a non-compete agreement is most justified in employment relationships where the employer is engaged in product development, research and other similar activities and, in connection with this, the employer possesses knowledge and know-how which is not generally available to other employers operating in the corresponding field.

Since 2022, the employer has been obligated to compensate the employee for a post-employment non-compete agreement.

Under the Employment Contracts Act, if the agreed restriction period is six months or less, the employer must pay the employee compensation for the restriction period that is equal to 40 per cent of the employee’s salary.

If the agreed restriction period is longer than six months, the employee must be paid compensation for the restriction period that is equal to 60 per cent of the employee’s salary. As a general rule, the restriction period may be a maximum of one year from the end of the employment relationship.

It has been held in case law (KKO 2003:19) that a post-employment non-solicitation clause may be assimilated to a non-compete clause if it is practically impossible for the employee to start working for a company operating in the same sector without violating the clause.

In other words, if a customer non-solicitation clause restricts the employee’s opportunities to operate in the same sector, it may be assimilated to a non-compete obligation. If the other conditions for non-competition under the Employment Contracts Act are also met, the employer may be obligated to pay compensation for the customer non-solicitation clause.

The employment advice service has noticed that it is becoming increasingly common to include non-solicitation clauses in employment contracts instead of non-compete agreements. In some cases, this may even be a way of circumventing the legislation governing non-compete agreements due to the related obligation to pay compensation.

Non-solicitation clauses may limit the employee’s opportunities to find a job in their field in the same way as non-compete agreements.

If the employee’s employment contract includes a customer non-solicitation clause, it is worthwhile for the employee to try to negotiate the removal or relaxation of such a clause similarly to non-compete clause when preparing the employment contract. 

Author works at TEK as a lawyer.