In a recent case in Denmark, an employer lost its right to obtain an injunction against a former employee performing consultancy work for a competitor.
The district court found that the employer had forfeited the opportunity to enforce the non-competition clause by not paying the required compensation, and the high court dismissed the appeal because the restricted period had expired.
If an employee is in breach of an agreed non-competition clause, the courts can, upon application by the employer, grant an interim injunction against the employee's employment or business activities if the employer can prove or establish that it has the right that is sought protected. The interim injunction must subsequently be followed by legal proceedings to determine whether or not the employee has breached the non-competition clause.
Interim injunctions are a pre-emptive measure aimed at preventing a breach until the actual proceedings are finalised. The question therefore arises: when is an injunction relevant and when is it too late? This question was addressed in a recent ruling by the Danish courts.
The case concerned an employee who had agreed to a non-competition clause with their employer. The clause was applicable for six months after the effective date of termination, and the employee was entitled to compensation in accordance with Danish law on post-termination restrictions. In addition, the employee was required to pay an agreed penalty corresponding to three months' salary in the event of a breach.
The employee resigned in June 2023 and left their position at the end of July. In September, another company announced that the employee would be performing consultancy work for them. Against this background, the former employer looked into the situation and, shortly thereafter, applied for an interim injunction against the employee's performance of consultancy work for the competing company.
Subsequently, the former employer also filed a claim against the employee for payment of the agreed penalty under the non-competition clause.
A question of sufficient interest
During the injunction proceedings before the district court, the employee and their trade union argued that they were not bound by the non-competition clause because at the effective date of termination the employer did not pay the minimum compensation required under the law on post-termination restrictions. At that point, the former employer had no basis for claiming breach of contract on the part of the employee.
The former employer argued, however, that the employee had performed competing activities both during and after the resignation, and that the employee had therefore forfeited their right to compensation, but that the employee was still bound by the clause.
The district court rejected the former employer's application for an interim injunction on the grounds that the employer had forfeited the right to enforce the non-competition clause by failing to pay the required compensation. Among other things, the court emphasised that the employee had resigned and had not been dismissed summarily. It also emphasised that it was not until after the effective date of termination, when a part of the compensation should have been paid, that the former employer came to the conclusion that the employee had breached their obligations.
The former employer appealed the ruling to the high court approximately two weeks before the non-competition clause expired, and the high court heard the appeal about three weeks later. The high court did not decide whether the non-competition clause could be enforced; instead, it dismissed the employer's appeal of the district court's decision on the grounds that the high court could not decide whether an injunction was appropriate at a time when the non-competition clause had already expired. Thus, the issue was moot and the former employer did not have sufficient interest to pursue the appeal.
Takeaway for Employers
This ruling illustrates that the right to apply for an interim injunction in connection with an employee's breach of non-competition and non-solicitation restrictions only applies if an ongoing breach can be stopped or prevented. It further illustrates that it is a requirement for enforcing a non-competition clause that the employee receives compensation in accordance with the provisions of the law.
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