Non-Competition Clause

A non-compete clause is a provision in an employment contract that, for a limited period after the employment relationship ends, prevents the employee from engaging in or accepting employment in a competing business.

It is included to protect trade secrets and technical know-how, not to make it difficult for someone to change jobs. The limits of this clause are tested in court, and they are narrower than many employers believe. For recruiters, this issue is relevant in two ways: your own contracts and the clauses that candidates already have in their contracts.

What is a non-compete clause?

Under Swedish law, the general rule is that an employee is free to work wherever they choose after their employment ends. A non-compete clause is an exception, and exceptions are interpreted narrowly.

The key provision is Section 38 of the Contracts Act. It states that a non-compete clause is not binding to the extent that it goes beyond what can be considered reasonable. Reasonableness is assessed on a case-by-case basis: the employer’s actual need for protection, how restrictive the clause is, and whether compensation is provided. A clause that is unreasonably far-reaching may be declared invalid in its entirety or limited by a court.

In addition to the law, there is the 2015 agreement on non-competition clauses—the agreement between the Confederation of Swedish Enterprise (Svenskt Näringsliv) and the Swedish Confederation of Professional Employees (PTK)—which replaced the 1969 agreement. It applies to employers bound by that specific agreement, not to all employers covered by collective bargaining agreements. The term of the non-compete clause is normally a maximum of 18 months, and in exceptional cases up to 24 months when the need for protection is particularly long-term. The employer must normally compensate the employee financially during the term of the non-compete clause, and the agreement also limits the amount of the penalty.

A clause is not normally invoked when the employer has terminated the employment for reasons not attributable to the employee, such as a shortage of work.

The non-competition clause is often confused with two related but separate provisions. A customer protection clause prevents an employee from soliciting or taking over specific customers, but does not prevent them from working in the industry. A confidentiality clause prohibits the disclosure or use of confidential information. It may remain in effect longer than a non-compete clause, but it too can be challenged on grounds of unreasonableness, and the Trade Secrets Act applies in parallel. In many cases, the need can be met by the latter two, which are less restrictive.

In short:

• Reasonableness is assessed in accordance with Section 38 of the Contracts Act.
• The 2015 agreement applies to employers bound by the agreement between the Confederation of Swedish Enterprise and PTK.
• The commitment period is normally a maximum of 18 months; in exceptional cases, 24 months.
• Compensation shall normally be paid during the lock-in period.
• Customer protection and confidentiality are distinct types of clauses with their own limitations.

When is a non-compete clause justified?

The question to ask before including the clause is simple: What, specifically, would we lose if this person were to start working for a competitor tomorrow? If the answer cannot be stated concisely, there is likely no need to invoke such a protective measure.

1. Truly company-specific expertise. This clause applies to technical expertise, know-how, and trade secrets, not to general professional experience.
2. A specific group of people. Clauses that are included in all employment contracts as a matter of course are harder to defend than those that target a small number of key employees.
3. Reasonable scope. The time frame, geographic area, and scope of activities must be consistent with the need for protection.
4. Specified compensation. The amount and the method of payment should be specified in the agreement, not left to be determined in subsequent negotiations.

The same analysis is needed from the other side. If the candidate has a clause in their contract with their current employer, it should be reviewed early on, preferably as early as during the screening, especially when direct search against competitors in the same region. If the clause is not included in offboarding When someone leaves your company, the last day of work can be a confusing situation for both parties.

Common Pitfalls with Non-Compete Clauses

1. The standard clause in all agreements. The same wording is used for salespeople, financial assistants, and developers. This undermines the need for protection and means the clause may not hold up when it is truly needed.
2. The clause is discovered too late. The candidate is ready to be hired when the condition arises, and a legal issue must then be handled under time pressure.
3. No compensation was agreed upon. The employer assumes that the clause applies regardless. The absence of compensation undermines the principle of reasonableness.
4. The wrong tool for the job. The intention is to protect customer relationships or information, but the agreement includes a broad non-compete clause. “Customer protection” or “confidentiality” would have better addressed the need.

How Talent Search Handles Non-Compete Clauses

We do not provide legal advice, but we handle the matter practically in almost each assignment. At the level we operate at—specialists and key roles with two to twelve years of experience—candidates often come from competitors in the same region. In such cases, non-compete clauses are a prerequisite that must be identified early on, not an obstacle to be discovered at the last minute.

• We ask about existing clauses as early as the first interview with the candidate.
• We'll let you know when a condition might affect the start date or which customers the person is authorized to handle.
• We recommend that you have a lawyer review both your own clauses and the candidate's before the contract is signed.
• We keep track of commitment periods and start dates throughout the process, so that the schedule is based on realistic conditions.

Sven Öquist knows which industries in western Sweden tend to be particularly sensitive to this issue.

Frequently Asked Questions About Non-Compete Clauses

Is it permissible to include a non-compete clause in all employment contracts?

No, that is rarely a sustainable arrangement. A clause must address a genuine need for protection, and according to Section 38 of the Contracts Act, it is not binding to the extent that it goes beyond what is reasonable. Standard clauses applicable to the entire workforce may not hold up.

How long can a non-compete clause remain in effect?

For employers bound by the 2015 agreement, the commitment period is normally no more than 18 months and, in exceptional cases, up to 24 months. Longer periods require a specific, long-term need for protection and are subject to strict review. If you are not bound by the agreement, the duration is still reviewed against the reasonableness requirement in Section 38 of the Contract Act.

Is the employer required to pay during the lock-in period?

Generally, yes. The employer must provide financial compensation to the employee for the period during which the clause restricts the employee’s ability to work. Without compensation, the clause is more difficult to defend.

What is the difference between a non-compete clause and a customer protection clause?

A non-compete clause generally restricts the right to work in a competing business. A customer protection clause restricts only the handling of specified customers. The confidentiality clause is a third, separate provision that protects information.

This text is a general overview of the regulations and does not constitute legal advice. Collective bargaining agreements and the circumstances of each individual case determine what applies to you.

Are you planning to recruit from a competitor in the region? Review the conditions with us Before you get started.