What is a non-compete clause? Rules and content

A non-compete clause is one of the most far-reaching clauses an employer can insert in an employment contract. It can limit an employee's right to work for a competitor or start a competing business for a period after the employment ends. But Danish law sets clear limits on when such clauses are valid and enforceable.

This guide explains the rules, the requirements, what a non-compete clause should contain, and when it actually holds up.

What is a non-compete clause?

A non-compete clause is a contractual prohibition on an employee, after leaving, working for a competing business or starting a competing business within a certain period and geographic area.

From the employer's perspective, the purpose is to protect:

• Trade secrets and know-how
• The customer base
• Investments in employee training and development

From the employee's perspective, a non-compete clause is a serious restriction on the right to work freely and maintain an income after leaving.

The rules since 2016: the Employment Clauses Act

Non-compete clauses in employment are governed by the Employment Clauses Act (ansættelsesklausulloven, Act no. 1565 of 15 December 2015). The rules apply to clauses entered into on or after 1 January 2016. Clauses entered into before that date follow the earlier rules, including section 18 of the Salaried Employees Act.

The central requirements are:

1. The employee requirement

Only employees who hold a specially trusted position can be subject to a non-compete clause. It is a discretionary assessment, but typically it is:

• Managers and directors (note, however, that a managing director is normally not an employee within the meaning of the Act)
• Specialists with access to strategic confidential information
• Sales managers with knowledge of strategic customer relationships

A standard employee without a specially trusted position cannot validly be bound by a non-compete clause.

2. The requirement of 6 months' employment

A non-compete clause can only be enforced once the employment relationship has lasted at least 6 months at the time of termination.

3. The compensation requirement

A non-compete clause is only valid if the employer pays compensation. The rates depend on the duration of the clause, and on whether the employee finds other suitable work:

Duration of the clause	Without other suitable work	With other suitable work (from month 3)
Up to 6 months	At least 40% per month	At least 16% per month
Over 6 and up to 12 months	At least 60% per month	At least 24% per month

The compensation for the first 2 months is paid as a lump sum no later than at termination (at least 40% or 60% respectively) and cannot be reduced, regardless of whether the employee finds new work. From month 3 the employee has a duty to mitigate: if they find other suitable work, the ongoing compensation falls to a minimum of 16% or 24%.

Example: A sales director with a monthly pay of DKK 80,000 is bound by a 12-month non-compete clause. The employer must pay at least DKK 48,000 (60%) for each of the first 2 months as a lump sum. After that the ongoing compensation is at least 60% if the director has not found new suitable work, but can fall to at least 24% if they do.

4. Maximum duration

A non-compete clause can run for at most 12 months from termination. Clauses with a longer term can be reduced by the courts.

5. Cancelling the clause

The employer can cancel a non-compete clause with one month's notice to the end of a month. The employee, however, keeps the right to the lump sum for the first 2 months if the termination occurs within 6 months of the cancellation of the clause.

Non-compete clause vs. customer clause

Many confuse the two concepts. They are legally different:

	Non-compete clause	Customer clause
What is limited?	Work for competitors generally	Contact with specific customers
Who does it affect?	Employers in the industry	Customers the employee has dealt with
Compensation	Yes (40/60%, reduced 16/24%)	Yes (same rates)
Max duration	12 months	12 months
6 months' employment	Yes	Yes

A customer clause can only cover customers the employee has had a business connection with within the last 12 months before the termination, and at termination the employee must receive a written list of the covered customers.

Combined clause

A non-compete and a customer clause can be combined in the same contract, but a combined clause may run for at most 6 months from termination. The compensation for a combined clause is at least 60% per month, reduced to at least 24% if the employee finds other suitable work. The first 2 months are paid as a lump sum (at least 60%) that cannot be reduced.

What should a non-compete clause contain?

A valid non-compete clause must be worded clearly and precisely. Vaguely worded clauses risk being set aside by the courts.

1. Who is bound? State explicitly which employee (name, position) the clause applies to, and that they hold a specially trusted position.

2. What is prohibited? Describe precisely which activity is restricted (employment with competitors, starting a competing business, advising competitors). "Work in the industry" is too vague.

3. Geographic limitation The clause should be limited geographically to the market the business actually operates in. A clause that applies "worldwide" for a local employee will hardly hold.

4. Duration State precisely: "The clause applies for [X] months from the date of leaving."

5. Compensation State the compensation rates and payment terms in line with the statutory minimum.

6. Contractual penalty Many clauses include a contractual penalty for a breach. It makes enforcement easier because you do not have to prove a specific loss.

When is a non-compete clause not enforceable?

Even a well-worded clause can be set aside if:

The employee is entitled to terminate the employment. If the employer has materially breached the employment so that the employee can rightfully terminate, the employee is as a rule not bound.

The clause is unreasonably broad. The courts can set aside or narrow a non-compete clause that is disproportionately broadly worded, under section 38 of the Contracts Act, for example if it prohibits work in a whole industry when only a narrow part actually competes.

The compensation requirement is not met, or the employment has lasted less than 6 months at termination.

Whether a clause continues to bind after an employer-initiated dismissal depends on the agreement and the specific circumstances. If you have been dismissed and are in doubt, seek advice before taking competing work.

Non-compete clause and confidentiality agreement: what is the difference?

A non-compete clause and a confidentiality agreement (NDA) both protect the business's interests, but in different ways:

	Non-compete clause	Confidentiality agreement (NDA)
Protects against	Competing activity	Disclosure of confidential information
Applies	After employment ends	During and after employment
Requires compensation	Yes	Not necessarily
Limits career paths	Yes	No

Many businesses use both: an NDA to protect secrets and a non-compete clause to protect market position.

Practical advice for employers

Only use the clause when necessary. A non-compete clause is expensive because of the compensation requirement and can harm recruitment. Use it only for positions where the risk of competitive harm is real.

Cancel the clause early. If you no longer need the clause, for example because the employee has accepted a job in another industry, you can cancel it with one month's notice and save the ongoing compensation.

Document the specially trusted position. Make sure the job description and any appendices clearly document that the employee holds a specially trusted position. It can be decisive if the clause's validity is challenged.

Practical advice for employees

Understand what you are signing. Ask specifically: which businesses are affected, and in what geographic area?

Negotiate the scope of the clause. You can try to negotiate the breadth down before employment, for example so it only applies to named direct competitors, not the whole industry.

Know your rights on leaving. Be aware of the lump sum for the first 2 months and of the duty to mitigate, which can reduce the ongoing compensation if you find new work.

Frequently asked questions

Can a non-compete clause apply to the self-employed?

Yes, but the conditions are different. Competition restrictions for the self-employed are not covered by the Employment Clauses Act but are governed by the general rules of contract law. They can still be set aside as unreasonable under section 38 of the Contracts Act (and section 36).

Is a non-compete clause valid if it is not agreed in writing?

No. The clause must appear in writing on a basis that the employee has signed and received a copy of.

What if an employee breaches the clause?

The employer can claim damages for the documented loss. If the clause has a contractual penalty, the amount can be claimed without proving a specific loss. The employer can also seek an injunction. In addition, the compensation paid can be reclaimed from the time of the breach.

Can I agree a longer duration than 12 months?

No. Twelve months is the maximum for a pure non-compete clause, and a combined non-compete and customer clause may run for at most 6 months. Clauses with a longer term can be reduced by the courts.

Does the non-compete clause apply if I resign myself?

As a rule yes. The clause is tied to the employment relationship, not to who terminates, provided the conditions (specially trusted position, compensation and so on) are met. The exception is if you rightfully terminate because of the employer's material breach.

Conclusion

A non-compete clause is a lawful and effective tool for protecting a business's interests, but only when used correctly. The Danish rules are clear: a requirement of a specially trusted position, at least 6 months' employment, mandatory compensation at fixed rates, and a maximum duration of 12 months (6 months for a combined clause). Clauses that deviate from these requirements are either invalid or can be reduced by the courts.

---

The content of this article is for guidance only and does not constitute legal advice. Consult a lawyer for advice on your specific situation.