Hamilton Perspectives Newsletter

New rulings regarding non-solicitation clauses in employment agreements

After the end of an em­ploy­ment, a for­mer em­ploy­ee is gen­er­al­ly al­lowed to en­gage in com­pet­ing busi­ness or take up em­ploy­ment with a new com­pet­ing em­ploy­er. However, re­stric­tive covenants such as non-com­pete claus­es and non-so­lic­i­ta­tion claus­es could some­times be used in em­ploy­ment agree­ments to re­strict em­ploy­ees’ com­pet­ing and re­cruit­ing ac­tiv­i­ties af­ter the ter­mi­na­tion of an em­ploy­ment. By means of a non-so­lic­i­ta­tion clause, a for­mer em­ploy­ee can be pro­hib­it­ed to so­lic­it cus­tomers and to re­cruit em­ploy­ees or con­sul­tants.

It has pre­vi­ous­ly been un­clear un­der which cir­cum­stances a non-so­lic­i­ta­tion clause could be too lim­it­ing for the for­mer em­ploy­ee, and there­fore deemed not to be rea­son­able. The Swedish Labour Court (Sw. Arbetsdomstolen) has re­cent­ly ruled on two dif­fer­ent cas­es, in which the Court de­clared non-so­lic­i­ta­tion claus­es un­en­force­able.

The Swedish Labour Court de­ci­sions (AD 2018 no. 61 and AD 2018 no. 62)

Three for­mer em­ploy­ees of the video game de­vel­op­er MachineGames start­ed new em­ploy­ments with a com­pet­ing em­ploy­er, Bad Yolk. The for­mer em­ploy­ees’ em­ploy­ment agree­ments con­tained a non-so­lic­i­ta­tion clause, by which they were re­strict­ed to em­ploy, re­cruit or so­lic­it em­ploy­ees from their for­mer em­ploy­er dur­ing a pe­ri­od of 24 months fol­low­ing the ter­mi­na­tion of their em­ploy­ments. MachineGames sought for an in­ter­im mea­sure – a pro­hi­bi­tion un­der penal­ty of a fine – against the for­mer em­ploy­ees and Bad Yolk. Uppsala District Court (Sw. Uppsala tingsrätt) grant­ed in­ter­im in­junc­tions, which were lat­er ap­pealed to the Swedish Labour Court.

The rea­son­ing of the Swedish Labour Court

The Swedish Labour Court deemed the non-so­lic­i­ta­tion clause not rea­son­able, and con­se­quent­ly set aside the dis­trict court’s de­ci­sions. In its de­ci­sions, the Swedish Labour Court made the fol­low­ing as­sess­ments. A nec­es­sary con­di­tion for grant­i­ng an in­ter­im in­junc­tion, is that the ap­pli­cant can show prob­a­ble cause for the claim. The court as­sessed that the non-so­lic­i­ta­tion clause was not lim­it­ed to em­ploy­ees at MachineGames which the for­mer em­ploy­ees pre­vi­ous­ly had worked with, or who had a cer­tain pro­fes­sion­al com­pe­tence. Furthermore, the clause did not on­ly re­strict the for­mer em­ploy­ees to ac­tive­ly try to re­cruit em­ploy­ees from MachineGames, but al­so re­strict­ed them to re­cruit em­ploy­ees who vol­un­tar­i­ly con­tact­ed them re­gard­ing new em­ploy­ments. Under these cir­cum­stances, the Swedish Labour Court con­clud­ed that MachineGames had not shown prob­a­ble cause for its claim.

Furthermore, the for­mer em­ploy­ees had ter­mi­nat­ed their em­ploy­ments sev­er­al months (6, 15 and 18, re­spec­tive­ly) pri­or to the date of the Swedish Labour Court’s de­ci­sions, and thus, MachineGames’ le­git­i­mate in­ter­est had al­ready de­creased to such an ex­tent that it could not be deemed rea­son­able to up­hold the non-so­lic­i­ta­tion re­stric­tions.

In Conclusion – A re­stric­tive view on non-so­lic­i­ta­tion claus­es

In its de­ci­sions, the Swedish Labour Court ex­press­es a re­stric­tive view on non-so­lic­i­ta­tion claus­es, since these could en­tail an­ti-com­pet­i­tive ef­fects equal to the ef­fects of a non-com­pete clause. Further, the de­ci­sions show the im­por­tance of a le­git­i­mate lim­i­ta­tion of a non-so­lic­i­ta­tion clause. A re­mark would be not to gen­er­al­ly in­clude non-so­lic­i­ta­tion claus­es in all em­ploy­ment agree­ments, but rather ap­ply it for a small­er range of em­ploy­ees un­der cer­tain cir­cum­stances. If the em­ploy­er would in­clude a clause that is too re­stric­tive or that is ap­plied on all em­ploy­ees, there is a risk that the en­tire clause may be deemed void.