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Compensation – forget it!

July 2011 - Corporate & Commercial. Legal Developments by Norrbom Vinding Law Firm, member of ius laboris.

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A business owner who sold off his business and was then hired as a market manager by the buyer was not entitled to compensation for post-termination restrictions.

When a business owner sells off the business, it is standard practice to undertake not to engage in competitive activities or to have any dealings with the customers for a certain period after the transfer. But if the seller is then employed by the buyer, must such a non-competition and non-solicitation clause comply with the validity requirements of the Danish Salaried Employees Act so that the seller would be entitled to compensation? That was the question in this case from the Danish High Court.
A business owner sold off his shares in a consultancy agency to a competitor for about EUR 1.05 million. The parties signed a share transfer agreement, which also provided that the former owner was to be employed as a market manager. The parties then signed an employment contract, which set out the terms and conditions of the former owner’s employment, including a non-competition and non-solicitation clause for which he received no compensation.
No protection
After about 2 years’ employment, the former owner was given notice. He was not too happy about that and turned to the courts, claiming among other things compensation for the non-competition and non-solicitation clause.
The Court said that this was no normal employer-employee relationship under the Danish Salaried Employees Act because the parties were equals. Together with the fact that the employment relationship had arisen out of a business transfer, there was no basis for saying that the former owner was protected by the Danish Salaried Employees Act. The employer was therefore not ordered to pay compensation.
Norrbom Vinding notes:
  • that the case shows that the courts will look at the overall contractual relationship in their assessment of whether a non-competition and non-solicitation clause signed in connection with a business transfer must comply with the requirements of the Danish Salaried Employees Act; and

  • that the fact that a non-competition or non-solicitation clause is contained in the employment contract rather than in the transfer agreement will therefore not necessarily be decisive.
The above does not constitute legal advice and should not be relied upon as such

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