Employers in Finland have a deadline of December 31, 2022, to double-check their pre-2022 employment contracts for noncompetition clauses and to waive them before the end of the transition year, if necessary. This is because as of January 1, 2023, employers will be obliged to pay compensation to any resigning employees or employees dismissed for cause, for the period of the noncompetition restriction after the employment, even if their pre-2022 employment contracts did not contain noncompete compensation clauses.
Since January 1, 2022, the effective date of the newly amended Employment Contracts Act, new employment contracts containing noncompetes have been required to provide for compensation. However, the act provided a transition period of one year in which employers could unilaterally waive noncompetes in pre-2022 contracts that did not contain compensation, so as not to be forced to pay for them in the future.
Compensation for noncompetes after January 1, 2023, under the act will be a minimum of 40 percent of the employee’s regular salary for a noncompetition period of up to six months, and 60 percent if the period is longer than six months. Noncompete clauses will apply only when the employee resigns or is dismissed for cause, but if the employment is terminated for reasons attributable to the employer (such as redundancies), the noncompete will be void.
After January 1, 2023, noncompetes of regular employees can be waived, but only with a notice period of at least one-third of the noncompetition period, or two months, whichever is more. This means that the employer will have to pay for some portion of the noncompete. In addition, after January 1, 2023, payment of “Director” noncompetes may not be waived by the employer, so that the entire noncompete period will have to be paid.
Employers may want to check all current employment contracts and their draft employment contract templates, in order to decide how to proceed. Going forward, it may be more cost-effective to focus on nondisclosure and nonsolicitation clauses (with contractual penalties) for most employees, and reserve paid noncompetes for the exceptional situation.