Non-compete clauses – review the agreements before New Year!

We recommend that all employers review and possibly adjust all existing agreements with restrictive covenants in accordance with the new provisions, within 1 January 2017. This will contribute to ensure clarity and predictability on the new provisions for both employees and employers.

The new provisions were adopted by the Parliament in December 2015, and incorporated in a new chapter 14 A in the Norwegian Working Environment Act. The provisions are reducing the employers' ability to agree upon restrictions of the employees' opportunity to take up employment in competing business, or start up or engage in other activities after termination of employment (non-compete clauses). The provisions are also reducing the employers' ability to restrict the employees' permission to contact customers of the firm after termination of employment (non-solicitation clauses). Finally, the new provisions have resulted in a prohibition for the employer to make an agreement with another employer, on not recruiting personnel from each other (non-recruitment clauses). 

The provisions came into force on 1 January 2016, meaning that all agreements which are entered into after this date must be in accordance with the new provisions. In order to give the parties an opportunity to adapt all existing agreements to the new provisions, the Parliament decided that it would apply a transitional period of one year. Accordingly, all existing agreements must be revised in accordance with the new provisions within 1 January 2017. 

Which changes should be made?

As stated in our previous newsletter, the new provisions are stipulating a maximum duration of 12 months for both non-compete clauses and non-solicitation clauses. Further, the new provisions require that non-compete clauses generally are being compensated with full pay in the restriction period (within certain limits). Accordingly, all existing agreements must correspond with these provisions by 1 January 2017. It is a condition for the validity of the clauses that they are written. In order to make the non-compete clauses and non-solicitation clauses applicable, employers also have to remember to act in accordance with the provisions regarding written statements in Section 14 A-2.

What happens if existing agreements are not revised by 1 January 2017?

The preparatory works emphasize that after the period of transition, the agreements are "subject to the legal provisions" and can only "be enforced within the frame of the act". This does not mean that clauses which are not revised within the end of 2016, will be null and void. The clauses will apply, but may only be enforced in accordance with the new provisions. This includes both the time limit, the obligation to pay compensation and the rules on written statements.