An employee’s obligations towards his or her employer generally terminate when their employment relationship terminates, unless the parties specifically agree otherwise. For example, they may conclude a so-called non-compete agreement. Such an agreement may be made only for very weighty reasons that relate to an employer’s operations or an employee’s position. A non-compete agreement can be used to restrict an employee for entering into an employment contract with the employer’s competitor or from directly engaging in competing activities.
A non-compete agreement might be appropriate when there is a genuine need for protection as a result of the employer’s business or trade secrets or when the employer has arranged especially valuable training for the employee. In practice, the criteria are most often fulfilled when the departing employee has held a leading position in the employer’s company.
A non-compete agreement might be appropriate, for example, where the employer is en-gaged in research and development and possesses knowledge and skills that its competitors generally do not. Non-compete agreements might also be justified where an employer company wants to protect the interests of its customers.
A non-compete agreement may restrict the employee’s right to make a new employment contract with the employer’s competitor or engage in competing activities for up to six months. If the employee is deemed to receive a reasonable compensation for the agreement, the period can last up to one year. An agreement restricting the employee for more than one year is in principle null and void after one year has elapsed. Likewise, if the employee is not paid any compensation, a non-compete agreement of more than six months becomes null and void after six months has elapsed.
A non-compete agreement may not impose a contractual penalty on the employee in excess of the amount of salary that employee has earned during the six months preceding termination. If there is no agreement relating to contractual penalties, the employee is obligated to pay the employer damages for the breach of the contract arising from tort law principles.
A non-compete agreement does not bind the employee if the employment contract is terminated for reasons attributable to the employer. For example, if an employer unlawfully terminates an employee’s employment contract, the employee is released from the non-compete agreement.
In Finland, non-compete agreements are regulated in chapter 3, section 5 of the Employment Contracts Act (55/2001) as follows:
“For a particularly weighty reason related to the operations of the employer in the em-ployment relationship, an agreement made at the beginning of or during the employment relationship (agreement of non-competition) may limit the employee’s right to conclude an employment contract on work to begin after the employment relationship has ceased with an employer which engages in operations competing with the first-mentioned employer, and also the employee’s right to engage in such operations on his or her own account.
In assessing the particular weight of the reason for instituting an agreement of non-competition, the criteria taken into account shall include the nature of the employer’s operations and the need for protection related to keeping a business or trade secret or to special training given to the employee by the employer, as well as the employee’s status and duties.
An agreement of non-competition may restrict the employee’s right to conclude a new employment contract or to engage in the trade concerned for a maximum of six months. If the employee can be deemed to receive reasonable compensation for the restrictions imposed by the agreement of non-competition, a restriction period can be agreed on that extends over a maximum of one year. Instead of compensation for loss, the agreement may include a provision on contractual penalty, which shall not exceed the amount of pay received by the employee for the six months preceding the end of the employee’s employment relationship.
An agreement of non-competition does not bind the employee if the employment relationship has been terminated for a reason deriving from the employer. What is provided above on restricting the duration of an agreement of non-competition and the maximum contractual penalty does not apply to employees who, in view of their duties and status, are deemed to be engaged in the direction of the enterprise, corporate body or foundation or an independent part thereof or to have an independent status immediately comparable to such managerial duties.
A restraint of trade agreement shall be null and void in so far as it is contrary to what is provided above. In other respects, the provisions in the Contracts Act (228/1929, Legal Transactions Act) shall apply to the validity and mitigation of such agreements.”