Employers must compensate employees for all non-competition agreements from January 2022

Before the obligation to pay compensation only applied to agreements longer than six months. The aim of change of the legislation is to reduce the use of unfounded non-competition agreements.

There is one-year transition period during which the employer may terminate an old non-competition agreement, and thereby avoid the duty to pay compensation under the new legislation.

Like before, the maximum duration of the non-competition restriction may be 12 months. The amount of compensation depends on the salary and on the agreed duration of non-competition agreement.

-For a non-competition restriction of up to six months, compensation shall equal to 40 per cent of the salary during that period.

– For a non-competition restriction longer than six months, compensation shall equal to 60 per cent of the salary for the entire non-competition period.

According to the new legislation the compensation payments must generally be paid in accordance with the salary payment practice applied.

The new legislation also entitles the employer to terminate a non-competition agreement during the employment relationship in case of a change of circumstances. A period of notice must then be observed amounting to one third of the restraint period stipulated in the non-competition agreement and not less than two months. Nevertheless, an employer cannot terminate a non-competition agreement after the employee has terminated the employment.

The employers should now review the current non-competition agreements and consider to what extent they are necessary and worth compensation, particularly taking into account the need for protection of business secrets.