Customer Clauses According to the Working Environment Act – Rules, Limitations, and Requirements

Customer clauses are a type of non-compete agreement regulated by the Working Environment Act, Chapter 14 A. Unlike non-compete clauses, which can prevent an employee from working for competing businesses, customer clauses specifically restrict an employee's ability to contact former employer's customers after the employment has ended. This article provides a review of what defines a customer clause and the requirements for such clauses to be valid and enforceable.

Definition of Customer Clause

The Working Environment Act § 14 A-4 (1) defines a customer clause as an "agreement between an employer and employee that limits the employee's access to contact the employer's customers after the end of the employment relationship".

For an agreement to be considered a customer clause under the law, four criteria must be met:

1. There must be an agreement between the employer and the employee

2. The agreement must restrict the employee's freedom of action

3. The restriction must apply to the employee's access to contact the employer's customers

4. The agreement must apply after the employment has ended

It is important to note that the law only mentions the employee's access to "contact" the employer's customers. According to the preparatory works, it is not permitted to enter into agreements that prohibit the employee from serving the former employer's customers who take the initiative to contact the employee. Such an agreement would be unlawful.

Formal Requirements for Customer Clauses

Written Requirement

A customer clause is only valid if it is entered into in writing, cf. the Working Environment Act § 14 A-4 (2), with reference to § 14 A-1 (3). The purpose of the written requirement is to ensure the notarization of the agreement, to avoid any doubt about the existence and content of the agreement.

Time Limit

The Working Environment Act § 14 A-4 (2) second sentence establishes that a customer clause can be enforced for a maximum of one year from the termination of the employment. This is an absolute limit that cannot be derogated to the disadvantage of the employee.

Connection Requirement

Unlike non-compete clauses, which require the employer to have a "special need for protection against competition," there is no such limitation for customer clauses. Therefore, the starting point is that the employer is free to enforce a customer clause upon termination of the employment.

However, there is an important limitation in the Working Environment Act § 14 A-4 (3): The customer clause can only include customers with whom the employee has had "contact with" or "responsibility for" during the last twelve months before the employer's explanation (connection requirement).

"Contact With"

The alternative "contact with" covers situations where the employee has had direct contact with the customer, for example:

• Discussions

• Contract negotiations

• Ongoing customer care

• Follow-up of existing customer relationships

There are no strict requirements for the scope of contact, but it must be more than of a sporadic nature. Isolated attempts at sales, such as through a single phone call or email, are not in themselves sufficient.

"Responsibility For"

The alternative "responsibility for" targets employees with overarching responsibility for:

• Individual customers

• Customer portfolios

• The company's customers in general

This includes employees who, by virtue of special authority or their position, can bind the employer through agreements with the customer. Under this alternative, there is no requirement that the employee must have had direct contact with the customer.

Employer's Duty of Explanation

The Working Environment Act § 14 A-4 (3) requires the employer to provide the employee with an explanation of whether and to what extent a customer clause will be enforced. The duty of explanation for customer clauses is largely similar to the duty of explanation for non-compete clauses.

An important difference, however, is the content of the explanation. For non-compete clauses, the explanation must indicate the circumstances constituting the "employer's special need for protection against competition". For customer clauses, the explanation must instead specify "which customers are covered by the clause".

Requirement for Specification

The purpose of the explanation is to ensure predictability for the parties. Therefore, each customer must be identified in the explanation, so it clearly states which customers the clause is intended to cover.

A general reference to an indeterminate group of customers or a formulation like "any customer the employee has had contact with or responsibility for in the last year" is not sufficient. The customers must be specifically identified.

Compensation for Customer Clauses

Unlike non-compete clauses, where the employer is obliged to compensate the employee during the quarantine period, there is no corresponding obligation to compensate for customer clauses. This is an important difference reflecting that customer clauses are generally less restrictive to the employee's earning opportunities after the end of employment.

Dismissal or Termination by Employer

The Working Environment Act § 14 A-1 (4) limits the employer's right to enforce a customer clause in cases where:

• The employer dismisses the employee, unless the dismissal is justifiable due to the employee's circumstances

• The employer has breached its obligations in the employment relationship, giving the employee reasonable grounds to terminate the employment

This provision also applies to customer clauses, cf. § 14 A-4 (2) with reference to § 14 A-1 (4).

Conclusion

Customer clauses are an important tool for employers looking to protect their customer relationships after an employee leaves. The Working Environment Act imposes strict requirements on such clauses to balance the employer's need for protection against the employee's need to utilize their skills and experience:

1. Customer clauses must be in writing

2. They can be enforced for a maximum of one year after the end of employment

3. They can only cover customers the employee had contact with or responsibility for in the last twelve months

4. The employer must provide a specific explanation of which customers are covered

5. They cannot prevent the employee from serving customers who contact the employee on their own initiative