Contents of this article:
- Non-compete clause – legal regulation
- Employer’s need for protection
- Duration of a non-compete clause
- When and how must a non-compete clause be entered into?
- When can non-compete clauses not be enforced?
- Compensation if a non-compete clause is enforced
When an employee leaves a job, the company may need to protect itself against the possibility that the employee’s knowledge will be used against their former employer. One way to prevent this is to enter into a non-compete clause. This limits the employee’s ability to work for a competing business for a specific period. In this article, we will look at when non-compete clauses may be enforced.
Non-compete clause – legal regulation
Non-compete clauses are regulated by the Norwegian Working Environment Act section 14 A-1. Here, it is stated that non-compete clauses are clauses that “restrict an employee’s access to accept positions with another employer or to start, operate or participate in another business after the end of the employment relationship.” This definition is intended to capture all cases where an employee engages in companies that compete with the employer, both ordinary employment in another company and other forms of work not regulated by the Working Environment Act. Board positions and consultancy agreements are examples that are included, but are not ordinary employments regulated by the Act.
A prerequisite for enforcing a non-compete clause is that the agreed restrictions are justified by considerations of competition. If, for example, the employee has access to a trade secret, a non-compete clause may be enforced under particular conditions. If the clause is justified by other reasons, such as public trust in administration, it is not covered and cannot be enforced.
Employer’s need for protection
It is not sufficient that the clause is justified by competition considerations. A clause that restricts an employee’s opportunities to accept competing work must also be necessary to safeguard the employer’s “special need for protection,” see section 14-A-1(2) of the Working Environment Act. A specific assessment must be made in each case of what the clause is intended to protect and to what extent it is enforced. The main justification for a non-compete clause is the protection of business secrets and know-how.
A trade secret can be a system used in the business but is not publicly known. Another example is a recipe for a product only known within the company. Know-how refers to “the collection of details, knowledge, and experience that together may be decisive for a company’s competitive strength, but individually may seem insignificant,” see Rt. 1964 p. 238. Examples may include which raw materials to use for the best result and how a machine should be operated for optimal results. Such information can be so valuable that the company wishes to protect itself from competitors learning about it.
However, the presence of trade secrets or know-how in a business is not sufficient. It must be assessed whether the departing employee actually has sufficient insight and knowledge of the employer’s business. If it is clear the employee does not know trade secrets or have relevant know-how, the employer will not have a particular need for protection. Although each employee must be specifically assessed, employees who do not have a management, senior, or particularly trusted position usually do not have the knowledge needed to justify a non-compete clause.
The type of company the employee will start working for must also be considered. For the employer to have a particular need for protection, the employee must actually take up work with a competing business. Competing business must be limited both geographically and commercially. Geographically, for instance, if the old and new employers sell the same product but in entirely different markets – both make IT systems, but the old employer sells only to Swedish firms while the new one sells only to Norwegian ones – then the former employer does not have a particular need for protection. Similarly, if the businesses produce different things, they are not competitors commercially.
Duration of a non-compete clause
A non-compete clause can only be enforced for up to one year after the end of employment. This means the employer cannot prevent the employee from taking competing work more than one year after employment ends. Employment ends when the notice period is over or on the day the employee is dismissed.
A shorter period may also apply. If it is not necessary to safeguard the employer’s particular need for protection for a whole year, the clause can be set aside when the need for protection no longer exists.
When and how must a non-compete clause be entered into?
A non-compete clause must be entered into in writing while the employment relationship exists. It is usual to agree on such clauses at the time of hiring or during the employment relationship. However, nothing prevents entering into such an agreement during the notice period, but it must be done before the employment relationship ends to be valid. If it is entered into after this, it is regulated by Section 38 of the Contracts Act instead.
When can non-compete clauses not be enforced?
An employment relationship can end by either the employee or the employer. A non-compete clause cannot be enforced if the employee is dismissed due to circumstances related to the company (e.g., downsizing). Neither can it be enforced if the employee terminates the contract due to the employer’s breach. If the employee resigns or is dismissed due to their own circumstances, the clause can be enforced as normal.
The company’s managing director may be exempt from customer clause regulations if it is agreed in writing that they should not apply, see Section 14 A-5 of the Working Environment Act.
Compensation if a non-compete clause is enforced
If a non-compete clause is enforced, the employee must be compensated for their reduced opportunity to work. According to Section 14 A-3 of the Act, the employee must receive 100% compensation up to 8G, and at least 70% of remuneration above 8G. “G” refers to the National Insurance Scheme’s basic amount, which as of May 1, 2025, is approximately NOK 130 160. If the employee finds work during the non-compete period, half the compensation can be deducted.
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