UPDATE: On May 10, the UK government announced its intention to limit the length of non-competes to 3 months in length. 

FURTHER UPDATE: The Netherlands recently announced proposals to review non-competes. The table below has been updated accordingly.

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The U.S. Federal Trade Commission (FTC) announced on January 5, 2023 a proposed ban on non-competes across the United States. With large global employers considering the implications of the proposed rulemaking, we reached out to attorneys across Littler’s European offices to find out how the law currently regulates non-competes. We also asked whether the work of the FTC is likely to influence the laws that apply across Europe.

As in the United States, non-compete restrictions across Europe are subject to particular scrutiny both on the basis that they unfair to workers and that they stifle competition. While the United States has approached this issue mainly through the prism of encouraging competition and free market liberalism, the European perspective on this issue tends to be more heavily influenced by the policy aims of employee protection.   

Terminology

At the outset a distinction should be made between two conceptually different types of “restrictive covenant” provisions. A “non-compete” is a provision that purports to prevent an employee from working for a competitor after employment with a current employer. By contrast, a “non-solicit” or a “non-poach” is a provision that purports to prevent an employee from enticing away a client or poaching a colleague (respectively), but does not prevent the employee from working for a competitor.   

There is a significant degree of nuance around these concepts. In some jurisdictions, for example, an employer may not only be able to prevent an ex-employee from approaching a customer but also may prevent an ex-employee from accepting a customer at their employer. 

This Insight focuses on non-competes imposed on employees in their capacity as such. As with the proposed U.S. FTC rule-making that would create a limited exception for business sellers (with a 25% ownership test), law in many countries allows for exceptions that apply in a business sale scenario. Different legal systems take differing approaches also to what are sometimes referred to as indirect non-competes―contractual provisions that have the effect (and often the purpose) of preventing competition. Examples might include overly broad disclosure or non-solicitation provisions or provisions that impose economic sanctions (such as equity plans that deem employees who join a competitor to be “bad leavers” who forfeit their awards¹). The FTC proposes to approach these issues with a functional test that evaluates whether a contractual term “has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer.”

European Dimension

Most European jurisdictions have long-standing restrictions on non-competes and, generally, they have not experienced the more egregious purported excesses that seem to have influenced the FTC proposals.

Interestingly, when you look to Europe, none of the major jurisdictions ban non-competes completely, nor are proposing to do so at this stage. Instead, many jurisdictions require that post-employment non-competes must be paid―either at full or part of normal pay. This is the case in France, Italy, Spain, Belgium, Denmark, Poland, Norway and Portugal. This at least removes the perceptive unfairness of preventing an employee from earning a living during such protective restriction, and in practice focuses employers’ minds to put these in place only when economically justified.   

In Germany, the law goes further and entitles the employee to insist on payment, even if the employer is willing to waive the non-compete period. 

Generally, the courts apply very similar legal principles requiring provisions to be limited in time, scope and (in some cases) limited to employees who meet a certain salary threshold. That said, the principles are applied in differing ways, and trying to use one global form of non-compete or non-solicitation agreement may not always satisfy local legal requirements.

For large global employers, especially those headquartered in the United States, their appetite for imposing non-competes on their global workforce is likely to be heavily influenced by what they do in their home market. For this reason, if the FTC proposed rule becomes law in the United States, then over time, U.S.-headquartered companies might become less likely to try to impose non-competes within Europe. 

European Survey

We asked whether three different kinds of restrictions are in principle enforceable (if deemed reasonable) in each jurisdiction:

✔ Enforceable “in principle” subject to local legal tests and exceptions. May be limited to employees with a basic salary over a minimum threshold and/or may depend on manner of termination.  Separate rules may apply when the employee is also a business owner.   

$ May be enforced as per above provided that individuals are paid full or part salary during period of restriction. Right to payment may depend on manner of termination and local legal rules.

× Not enforceable.