This article is the first in a series of articles dedicated to exploring the complexities of restrictive covenants in employment agreements. This series will cover a range of topics to be considered when drafting employment agreements in Sweden. The objective is to provide our readers with a comprehensive overview of the essential restrictive covenants to consider when drafting employment agreements in Sweden highlighting specific considerations to avoid potential pitfalls.
Non-solicitation restrictions are commonly included in employment agreements to protect a company’s workforce from being poached by former employees. Such restrictions may also be referred to as “non-poaching” or “non-dealing” restrictions. These clauses aim to limit departing employees' ability to leverage their personal relationships and knowledge of particularly valuable staff by recruiting them to join a competing business. In Sweden, while non-solicitation clauses are enforceable, they must meet specific criteria to ensure fairness and legality. In this article, we will go through some main points concerning non-solicitation restrictions in Sweden. While non-solicitation restrictions may also apply to the soliciting of customers and clients, this article only concerns the soliciting of employees.
* The information should not be seen as exhaustive or advisory in specific cases.
Non-solicitation restrictions are designed to protect a company’s staff from being approached and poached by former employees when they have left their employment with the company. The restrictions usually prevent former employees from encouraging their former colleagues to leave the company and take up employment with the former employees’ new employer, especially if the new employer is a competing business. The main purpose of such restrictions is to safeguard the company’s workforce and maintain operational stability when employees depart.
In Sweden, non-solicitation restrictions are permissible but must meet certain criteria to be considered enforceable. While a non-solicitation clause is less restrictive than a non-competition clause, as it does not limit the employee’s ability to seek new employment within the same industry, the non-solicitation clause should not impose excessive limitations on employees. Swedish courts mainly consider the scope and duration of such clause when evaluating its validity. If a non-solicitation clause is challenged in court, there is a risk that the clause may be deemed null and void if it is unreasonably burdensome to the employee. Therefore, it is crucial for employers to ensure that their non-solicitation clauses are balanced and fairly protect both the company’s interests and the employee's freedom to pursue new opportunities.
Non-solicitation restrictions are significant for several reasons. They help in retaining key employees and preventing disruption within the company. Losing an employee can be challenging, but losing multiple employees due to solicitation from another former employee can significantly affect operations and morale. Non-solicitation restrictions also help maintain established relationships with clients and partners. Employees often form strong connections with clients and their departure could entail a risk of transferring those relationships to competitors.
Furthermore, a former employee soliciting current employees typically gains a competitive advantage through their prior employment at the company, having developed relationships and acquired insights into their colleagues' skills and expertise during their tenure. Non-solicitation clauses ensure that departing employees do not leverage this insider knowledge to recruit their former colleagues, potentially benefiting competitors. Through their prior employment, the soliciting employee would have built valuable professional connections and gained a deep understanding of their colleagues' competencies, making non-solicitation clauses essential to prevent the exploitation of such internal knowledge and relationships, especially when those professional relationships have been formed while working together at the company.
Additionally, non-solicitation restrictions help in preserving internal team dynamics. Employees who leave might attempt to bring their former colleagues along, leading to potential instability within the team. Such scenarios can result in a loss of valuable knowledge, expertise, and camaraderie built over time within the workforce.
A well-drafted non-solicitation clause should include several key elements to increase its enforceability.
Firstly, the clause should clearly define the scope of application, specifying which employees are subject to the restriction. In this context, the non-solicitation clause should consider the nature of professional relationships. The employee engaging in solicitation should typically have gained a competitive advantage in relation to the solicited employee, meaning that the soliciting employee should have acquired their knowledge of, and established a professional relationship with, the solicited employee and their skills and expertise during their time at the company. Consequently, it might be deemed unreasonable if the employees already had a pre-existing professional relationship from previous employment and the soliciting employee did not gain insight into the solicited employee’s skills through their current employment. As a result, the restriction should therefore generally be limited to only cover the solicitation of employees with whom the departing employee has developed a working relationship with during their time at the company or employees with specialized expertise.
The company must also have a legitimate interest in maintaining the non-solicitation restriction, specifically concerning the personnel the restriction aims to protect. This interest must be justifiable and specific for each individual targeted for solicitation to ensure the clause is both fair and enforceable.
The duration of the restriction is a key factor in determining its enforceability and should clearly define the period during which the restriction remains in effect. This duration should be reasonable, depending on the employee’s role and industry. According to Swedish case law, the restricted term should typically not exceed six months to ensure it remains reasonable and enforceable. However, the length of the restricted period may be longer for e.g. the managing director and members of senior management for whom a more extensive non-solicitation restriction is typically reasonable.
Further, the clause should outline the specific activities that are prohibited. In this context, the clause should only prohibit active solicitation, not the general recruitment efforts or the employment of former colleagues who independently applied for new roles. Therefore, restrictions focusing solely on terms like "recruitment" or "employing" are typically considered unreasonable. Instead, the clause should target active recruitment efforts, including actions like "solicit," "encourage," or "persuade". This is of course something that will affect a potential dispute regarding the validity of a non-solicitation restriction since active solicitation can be difficult to prove for the former employer. However, this is an important factor that has been established in Swedish case law, therefore, it is recommended to limit a non-solicitation clause to active solicitation in order to minimize the risk of the clause being deemed unreasonable if tried by a court.
Finally, the clause should normally be combined with a mechanism for liquidated damages in order for the company to be able to immediately claim damages for the breach of the restriction. Given that the actual damage caused by an employee breaching the restriction may be higher than the fixed amount of liquidated damages, the company should reserve the right to claim actual damages in order to be able to seek full compensation if the actual damages exceed the fixed damages. The wording also serves as a deterrent, as the employee is made aware that there is no "price tag" for breaching the restrictive covenant.
By incorporating these elements, employers can create non-solicitation clauses that protect the company’s interests while also respecting the legal rights and opportunities of former employees and are more likely to hold up in Swedish courts.
If you have any questions regarding restrictive covenants and the content of employment agreements in general, or other employment law issues, please do not hesitate to contact our employment law practice group.
Written by Eric Leijonhufvud och Jonas Lindskog.