Recruitment Clauses – Prohibitions, Exceptions, and Rules in Business Transfers

Recruitment clauses are a type of restrictive agreement that differ from non-compete and customer clauses in that the employee themselves is not a party to the agreement. These clauses are regulated by the Working Environment Act, chapter 14 A, which mainly prohibits such agreements, but with certain exceptions related to business transfers. This article explains what recruitment clauses are, why they are generally prohibited, and in which limited cases they can nevertheless be applied.

Definition of Recruitment Clauses

Recruitment clauses can generally be described as agreements that restrict the parties' access to recruit each other's colleagues or employees. There are essentially two types of recruitment clauses:

1. Agreements between employer and employee that the employee shall not assist other employees in terminating their employment relationship with the employer

2. Agreements between two businesses that they shall not hire, or attempt to hire, each other's employees

The regulation by the Working Environment Act is limited to the second type. The law defines a recruitment clause as an "agreement between employer and other businesses that prevents or restricts the employee's opportunities to take employment in another business" (§ 14 A-6 (1)).

For an agreement to be considered a recruitment clause under the Working Environment Act, three criteria must be met:

1. Party relationship: The agreement must be made between "employer and other businesses". At least one of the parties must be an employer with its own employees.

2. Restrictive effect: The agreement must "prevent or restrict" the employee's opportunities. This includes both direct prohibitions on recruitment and agreements that through other mechanisms (e.g., remuneration clauses) in reality have the same effect.

3. Employment in another business: The restriction must apply to the employee's opportunity to take "employment in another business".

Main Rule: Prohibition of Recruitment Clauses

The Working Environment Act § 14 A-6 (2) first sentence sets out a general prohibition on recruitment clauses. This prohibition is justified by several considerations:

1. It is considered principally unfortunate that agreements restrict employees' access to change jobs without employees themselves being parties to the agreement

2. The prohibition is intended to contribute to ensuring mobility in the labor market

3. The regulation is intended to counteract circumvention of the rules on non-compete and customer clauses

Employees should be able to utilize their competence and ability to work without being bound by agreements that they themselves have not entered into. Recruitment clauses could otherwise constitute significant obstacles to employees' career development and wage progression.

Exceptions to the Prohibition: Business Transfers

The law sets out two important exceptions to the prohibition on recruitment clauses, both related to business transfers:

1. Negotiations on Business Transfer

Recruitment clauses can be agreed and made applicable in connection with "negotiations" on business transfer (§ 14 A-6 (2) second sentence). This is because the parties in such negotiations often give each other access to sensitive information, including information about key employees.

For this exception to apply, there must be:

• Genuine plans to carry out a business transfer

• The negotiations must have progressed to the point where the businesses give each other access to documents and information that outsiders normally do not have access to

The recruitment clause can be made applicable as long as real negotiations are ongoing, until:

• The negotiations break down, or

• The negotiations lead to a business transfer

If the negotiations break down, the recruitment clause can still be made applicable for an additional six months after the negotiations have been concluded.

2. Implementation of Business Transfer

Recruitment clauses can also be made applicable in connection with the actual implementation of a business transfer (§ 14 A-6 (2) third sentence). Such clauses can be entered into at the time of the business transfer and made applicable for up to six months.

The purpose of this exception is to give the acquiring business time and opportunity to:

• Utilize what has been acquired, including employees and knowhow

• Secure knowledge about the company

• Maintain customer and business relations

For a recruitment clause to be made applicable in the implementation of a business transfer, the employer must have informed the employees affected by the clause in writing (§ 14 A-6 (2) last sentence).

It is important to note that a recruitment clause must yield to the employee's rights under the Working Environment Act § 16-3 (right of reservation) and the unwritten right of choice. In other words, employees retain their statutory rights in business transfers regardless of any recruitment clause.

Practical Consequences and Limitations

When applying recruitment clauses in the cases where this is allowed, it is important to be aware of the following limitations:

1. Time Limitation: Upon the breakdown of negotiations, the clause can only apply for six months after the negotiations have concluded. Upon a completed business transfer, the clause can only apply for six months from the transfer.

2. Information Obligation: The affected employees must be informed in writing about the recruitment clause. The considerations behind the information obligation imply that it is irrelevant who provides this information, as long as it is given.

3. Relation to Employee's Rights: Recruitment clauses cannot override employees' statutory rights in business transfers.

Conclusion

Recruitment clauses are in principle prohibited under Norwegian law, but can be used in specific situations related to business transfers. The regulations balance the consideration for businesses' needs to protect sensitive information and investments in connection with business transfers against the consideration for employees' freedom in the job market.

For businesses considering entering into such agreements, it is important to understand both the main rule of prohibition and the narrow exceptions that exist, as well as the formal requirements needed for the exceptions to be applicable.