Employers would have to pay compensation to employees for non-competition agreements

In the future, an employer would have to pay compensation to an employee for non-competition agreements, whereas currently the obligation to compensate only applies to agreements lasting more than six months. The aim of Government proposal is to reduce the number of unjustified non-competition agreements that cause inflexibility in the labour market.

Non-competition agreements are widely used in Finland, and almost for all groups of employees, regardless of whether they are key employees of the company or not. "The compensation model ensures that non-competition clauses are only imposed on those people whose job requires it” Minister of Employment Tuula Haatainen says.

A non-competition agreement restricts the employee’s right to take up into employment with a competing employer and the right to engage in competing activities after the termination of the employment relationship. The Government proposes that the Law provide for a broader obligation to pay compensation, the date of payment of the compensation and the employer's right to terminate the non-compete agreement.

The amount of compensation would depend on the employee’s salary and the agreed duration of the non-compete restriction period. For a restriction period of up to six months, compensation should be equal to 40% of employee's salary during that period. If this period is longer than six months, compensation would be equal to 60% of the salary for the whole restriction period. A non-competition agreement could be concluded for a maximum of one year.

The compensation payment date has to be the same as the employee’s pay day during employment relationship.

According to the new provision the employer could terminate the non-competition agreement during the employment relationship if circumstances change. In that case, the notice period should be observed (minimum of 2 months). However, the employer cannot terminate this agreement after the employee has left.

The amendments would be made to the Employment Contracts Acts as of January 1, 2022. The Government submitted the proposal to Parliament on November 12, 2020.

The full information and the source text can be found at Ministry of Economic Affairs and Employment of Finland website.