Insights | May 5, 2020

Proposed amendments to employees’ non-compete obligation in Finland

A working group, consisting of Finnish governmental representatives and representatives of labor market organizations (the so-called "tripartite"), has issued a draft proposal regarding the legislative amendments concerning employees' non-compete obligations.

The amendments would be made to the Employment Contracts Act and the Seafarers’ Employment Contracts Act. The draft Bill is to be circulated for comments until 22 May 2020.

The key points of the draft Bill are the following:

• An employer’s obligation to pay compensation to an employee for entering into a non-compete obligation would cover all non-compete agreements. (Currently, employers are obliged to compensate employees for post-employment non-compete obligations only if the obligation applies for over six (6) months.)
• The amount of compensation payable to an employee for entering into a non-compete obligation would be stated in the Employment Contracts Act. The compensation would be paid on a percentage basis and would be linked to the employee’s salary and the agreed duration of the non-compete period. For a non-compete period of up to six months, compensation would be equal to 40% of the employee’s regular salary, and for a non-compete period exceeding six months, it would be equal to 60% of the regular salary. (According to the current rules, the employer is only obliged to pay reasonable compensation for a non-compete period lasting over six (6) months. Further, it is not specified what constitutes “reasonable compensation”.)
• The compensation should be paid during the non-compete period and the date of payment would be the same as the employee’s regular pay day during their period of employment. Other payment arrangements could be agreed upon, but only after the employee’s resignation. (There are currently no statutory requirements regarding the timing of the payment of compensation.)
• The employer would have the right to unilaterally terminate the non-compete agreement within the agreed notice period if circumstances changed during the period of employment.

The abovementioned amendments are intended to come into force on 1 January 2021. It is proposed that the amendments would also apply to non-compete agreements concluded before the entry into force of the amendments. However, a transitional period of one year would be applied to previously concluded non-compete agreements. The employer could, therefore, terminate the non-compete agreement during the transitional period. However, if the employer had already paid reasonable compensation for a non-compete obligation lasting over six (6) months or reasonable compensation had already begun to be paid out – the proposed legislation would not apply.