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Non-competition clause set aside as unreasonable

October 2009 - EU & Competition. Legal Developments by Norrbom Vinding Law Firm, member of ius laboris.

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If a non-competition clause is unreasonable, it may be set aside based on an overall assessment of facts

 

Judgment by the Maritime and Commercial Court in Copenhagen

Michael Elof Nielsen
men@norrbomvinding.com

If a non-competition clause is unreasonable, it may be set aside based on an overall assessment of facts

 

In extraordinary cases, a non-competition clause may, based on an overall assessment, be set aside pursuant to s 36 of the Danish Contracts Act if it would be unreasonable and at variance with the principles of good faith to enforce it.

A Danish courier business contracted with a number of subcontractors to perform its contract with a global courier. The subcontracts contained a non-competition clause drafted by the Danish courier business.

When the global courier terminated the contract with the Danish courier, the Danish courier terminated the subcontracts with two days' notice, notwithstanding the one-month notice period stipulated in the subcontracts. A few weeks later, the subcontractors started working for one of the Danish courier's competitors which was now working with the global courier.

The clause was set aside

The Danish courier believed that the subcontractors had acted disloyally and in breach of the non-competition clause. It therefore sued, claiming payment of an agreed penalty of DKK 250 000.

The Maritime and Commercial Court in Copenhagen did not find for the Danish courier, taking into account that it had terminated the subcontracts with a considerably shorter notice than agreed. This meant that the subcontractors suddenly had no income. In addition, the Court stressed that the subcontractors had been placed in a "take it or leave it" situation when they accepted the non-competition clause. All things considered, the Court did not find that the subcontractors had acted disloyally to the Danish courier.

Weight was also given to the fact that the restricted period was unusually long, that the non-competition clause had no geographical limitations, and that the subcontractors had not received compensation for accepting the restriction. Finally, the Court found the agreed penalty disproportionate.

 

Norrbom Vinding notes: 

  • that the judgment shows that in extraordinary cases s 36 of the Danish Contracts Act may apply in relation to non-competition agreements not only between employer and employee but between subcontractors as well; and
  • that the question of whether a non-competition agreement can be set aside under s 36 of the Act will be based on an overall assessment of facts.

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