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Penalty for breach of no-hire agreement

March 2009 - Employment. Legal Developments by Norrbom Vinding Law Firm, member of ius laboris.

More articles by this firm.

23-02-2009 - Did an encouragement to employ amount to an indirect agreement to employ? 'Yes’, said the Danish Western High Court.

In the Danish business sector, companies will sometimes agree with other companies not to hire each other's employees. But when it comes to recruitment, where should the line be drawn for what an employer is allowed to do? In this case, an encouragement to employ amounted to an indirect agreement to employ.

A cleaning company had won a contract to clean three supermarkets belonging to the same supermarket group. The contract had been signed before the introduction of the Danish Act on Employers' Use of Non-Solicitation and No-Hire Restrictions.

The contract prevented the supermarkets from directly or indirectly hiring the cleaning company's employees for one year after termination. If they did, it would cost them an agreed penalty of 30 % of the annual fees under the contract. The supermarket group terminated the contract after only one year, however, because they had decided to outsource their cleaning.

Hired by the competitor

The five cleaners who had cleaned the three supermarkets were all hired by the successful bidder for the outsourcing contract:

Two of them were hired without the supermarkets being involved. Another was informed by one of the supermarkets of the name of the successful bidder and then contacted that company. As for the remaining two cleaners, one of the supermarkets contacted the new cleaning company, encouraging them to hire the two cleaners.

The original cleaning company was not pleased with this and issued proceedings against the supermarket group, claiming breach of contract because the supermarket group had assisted their competitor in employing the cleaners.

The Court (by a majority) found for the cleaning company as far as two of the five cleaners were concerned. Identifying the successful bidder was not contrary to the contract. However, one of the supermarkets had acted in breach of the contract by contacting the new cleaning company and encouraging them to hire - that was an indirect agreement and it cost the supermarket group about DKK 300 000.

Norrbom Vinding notes: 

  • that the case shows that a no-hire clause may sometimes be taken as covering also more indirect actions by a company; and

  • that no-hire agreements made after 1 July 2008 must comply with the Danish Act on Employers' Use of Non-Solicitation and No-Hire Restrictions. This means, among other things, that the affected employees are entitled to compensation and to be informed in writing of the restrictions.

Click here to see Norrbom Vinding's article on the Danish Act on Employers' Use of Non-Solicitation and No-Hire Restrictions.

This information does not constitute legal advice and should not be relied upon as such

For more information please visit www.norrbomvinding.com