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.