Amendment to Finn Employment Contract Act

Legislative amendments concerning non-competition agreements sent out for comments

Ministry of Economic Affairs and Employment 9.4.2020 15.23 

A tripartite working group has prepared draft legislative amendments that would extend employer’s obligation to pay compensation to an employee for a non-competition agreement to cover all non-competition agreements. In addition, the Act would lay down the date of payment of the compensation and the employer’s right to terminate the non-competition agreement.

The amendments would be made to the Employment Contracts Act and the Seafarers’ Employment Contracts Act effective as of 1 January 2021. The new regulation would also apply to non-competition agreements concluded before the entry into force of the Act after a transitional period of one year, with certain exceptions.

Compensation for all non-competitive agreements, detailed provisions regarding payment

According to the working group’s report, the obligation to pay the employee compensation for the non-competition agreement will be extended to cover all non-competition agreements. Under current legislation, the obligation to pay compensation only applies to non-competition agreements that forbid competition for more than six months.

Compensation to an employee for a non-competition agreement would be paid on a percentage basis. The amount of compensation would be tied to the employee’s salary and the agreed duration of the non-competition period. For a non-competition period of up to six months, compensation would be equal to 40% of the normal salary, and for a non-competition period of over six months it would equal 60% of the normal salary. The proposed maximum duration of a non-competition agreement would be one year.

The current legislation does not contain provisions regarding the time at which compensation should be paid. According to the working group’s report, provisions on the date of payment are to be laid down in law order to avoid any ambiguity and disputes. The compensation should be paid while the non-competition agreement is in effect. The payment date would be the same as the employee’s pay day during their employment relationship. Other payment arrangements could be made, but only after the employee’s resignation.

As a new element, the amendment would introduce regulation on the employer’s right of dismissal. If the circumstances changed during the employment relationship, the employer could terminate the non-competition agreement with the agreed period of notice. The duration of notice should be at least as long as the period of non-competition.

The working group’s work is based on the Government Programme

The Government Programme of Prime Minister Sanna Marin states that the use of non-competition agreements will be restricted by clarifying the legislation. In November 2019, the Ministry of Economic Affairs and Employment appointed a tripartite working group for the purpose of implementing the objectives regarding non-competition agreements set out in the Government Programme. The working group’s term ended on 31 March 2020.

Proposals for amendments to the Seafarers’ Employment Contracts Act were prepared separately on the basis of the working group’s report.

The draft Government proposal will be circulated for comments until 22 May 2020.

Attached to the request for comments are a joint supplementary opinion of the employee confederations, and a joint dissenting opinion of the Confederation of Finnish Industries EK and the Federation of Finnish Enterprises.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s