Employer remedies for breaches of non-compete clauses

The rules governing non-compete clauses in employment relationships are set out in Chapter 14 A of the Norwegian Working Environment Act. These provisions regulate the validity of non-compete clauses agreed between employers and employees. However, the Act does not specify the consequences of an employee breaching a non-compete clause.

The parties may agree on applicable sanctions

Under Norwegian law, the parties are generally free to agree on the sanctions that will apply in the event of a breach of a non-compete clause. Such agreements often stipulate a fixed amount, or a contractual penalty, that the employee must pay if the clause is breached. However, penalty provisions may be set aside or reduced if they are deemed unreasonable pursuant to Section 36 of the Contracts Act. Accordingly, a case-by-case assessment should be made to determine what constitutes a reasonable sanction for a breach of a non-compete clause.

The employer may seek a preliminary injunction

If a breach has already occurred, the employer may apply to the courts for a preliminary injunction in order to bring the breach to an immediate halt. A preliminary injunction is a temporary court order that remains in effect until a final judgment is rendered. Such injunctions are therefore used when there is an urgent need to prevent certain conduct pending the outcome of legal proceedings. If the employer succeeds in obtaining an injunction, the employee may be prohibited from working for a competing business.

The conditions for obtaining a preliminary injunction are set out in Sections 34-1 and 34-2 of the Norwegian Dispute Act. Under these provisions, a preliminary injunction may be granted if the applicant can demonstrate both that there is a claim that warrants protection, and that there is a basis for securing the claim.

The Dispute Act provides two grounds for security:

• The conduct of the defendant makes a preliminary injunction necessary because enforcement of the claim may otherwise be substantially impeded.
• In a disputed legal relationship, a preliminary injunction is necessary to prevent substantial harm or inconvenience, or to prevent acts of violence that there is reason to fear as a result of the defendant’s conduct.

In cases involving non-compete clauses, the second ground will typically be sufficient, as the employer will generally seek to prevent the business from suffering financial loss as a result of the contractual breach.

The employer may claim damages

Another option available to the employer is to bring a subsequent claim for damages against the employee for any financial loss suffered as a result of the breach of contract. In such cases, the ordinary rules of damages apply. This means that the employer must demonstrate both that it has suffered a financial loss and that the loss was caused by the employee’s breach of the non-compete clause.

Source: Nils H. Storeng m.fl., Arbeidslivets spilleregler (5. edition, 2020)