Action points for employers due to changes in the Finnish non-compete legislation
As of 1 January 2022, the amendments to the Finnish Employment Contracts Act concerning post-employment non-compete agreements entered into force. Our employment law experts have taken a closer look at the amendments.
For some of the employers who have entered into post-employment non-compete agreements with their management and/or other employees, the amendments to the Finnish Employment Contracts Act (55/2001) means that action needs to be taken to avoid costs deriving from unnecessary non-compete clauses. Due to the one-year transitional period in 2022, different rules now apply to non-compete agreements concluded before and after the amended legislation entered into force.
Non-compete agreements subject to a transitional period
All employers that entered into non-compete agreements with managers and other employees before the new legislation came into force on 1 January 2022 have a one-year transitional period in which the employer may terminate the agreements unilaterally without any obligation to comply with the notice period or pay compensation.
Thus, it is recommended that, in 2022, employers review and evaluate all employment agreements that contain post-employment non-compete clauses, including the agreements concluded with the managers. It is to be noted that the new legislation does not change the position of the managing director, who continues to be outside of the scope of the rules, as, in Finland the managing director (unlike other management) is not considered as an employee of the company. When reviewing the non-compete clauses, it is recommended that other restrictive covenants are also reviewed in this context in order to avoid any ambiguities in the future.
Employers have until the end of 2022 to terminate non-compete agreements concluded before the amendments entered into force. The authorities have now stated that, during the transitional period, the employer may terminate the non-compete agreements without any obligation to give notice or pay compensation also after the employee has resigned, which is not possible under the new legislation.
If, based on its review, the employer decides to terminate non-compete agreements during the transitional period, it is recommended that this be done in writing and signed by both parties. As the non-compete agreement is typically contained in the employment or managerial agreement, one recommendation is to attach the termination notice signed by the parties to the employment agreement.
Entering into non-compete agreements under the new legislation
All post-employment non-compete agreements entered into with managers or other employees as of 1 January 2022 must according to the new regulation be compensated for. As the transitional period is not applicable to these non-compete agreements, they can only be terminated in accordance with the notice period requirements set by the new legislation. Also, the minimum level of compensation payable and the period in which the compensation must be paid are set out in the legislation.
The requirement for particularly weighty reasons in order for an employer to enter into a non-compete agreement with an employee, remains unchanged in the new legislation. The particularly weighty reasons must exist both when the post-employment non-compete agreement is entered into as well as when the employer seeks to enforce the agreement.
As the legislation has now changed, it might be in the interests of the employee to agree in writing on the compensation level when entering into a non-compete agreement. However, this might not be in the best interests of the employer. Thus, it is recommended that, when drafting non-compete agreements or clauses under the new legislation, employers carefully consider the wording of their non-compete agreements and clauses as well as other restrictive covenants. An employer might also benefit from the help of a specialist in order to ensure that template agreements are in accordance with the changes in the legislation. In addition, other alternative solutions for protecting employers’ trade secrets etc. could be discussed with our employment law experts.