Blog/Guides
Non-compete agreements in Finland: what employers should know
A non-compete now costs 40–60% of salary for the restriction period. Here is when you can require one, what it costs, and how to get out of it in time.
You almost certainly have non-compete clauses in your employment contracts. Since the compensation obligation was introduced, each of those clauses is a standing financial liability rather than free insurance — 40 or 60 per cent of salary for the whole period it restricts someone.
That changes what a non-compete is for. It is no longer a clause you add to a template because it seems prudent. It is a purchase, and one you should only make where you would genuinely pay for the protection.
Two separate things get confused here, so start by telling them apart. The prohibition on competing activity during employment applies automatically, with nothing to sign. A non-compete agreement restricts what someone does after they leave, and it needs an agreement, a particularly weighty reason, and money.
- Compensation is 40% of pay for a restriction period of six months or less, and 60% for a period longer than that.
- The restriction period can run for at most one year from the end of employment.
- A contractual penalty agreed in place of damages is capped at the employee’s pay for the six months before employment ended.
- You can cancel a non-compete by giving notice of at least one third of the restriction period, and never less than two months — but only until the employee resigns.
- A non-compete needs a particularly weighty reason tied to your operations, and it does not bind someone you make redundant.
What is already prohibited without any agreement?
Competing activity during employment, automatically. An employee may not do work for another, or run a business, that obviously harms their employer and constitutes an act of competition contrary to good practice. That prohibition comes from the Employment Contracts Act itself and requires no separate clause.
It covers both employment with someone else and the employee’s own business activity, and its purpose is to stop an employee exploiting your trade or professional secrets while still on your payroll.
So if what worries you is someone moonlighting for a competitor now, you already have the protection and you do not need to buy it.
Next: check that your employee handbook or code of conduct already states this prohibition, so you are not tempted to pay for a non-compete that only covers what the law already covers.
When can you require a non-compete?
Only with a particularly weighty reason connected to your operations or to the employment relationship — and the reason has to survive.
This is the part that catches employers. The reason must be valid not only when you sign but also when you actually invoke the non-compete. If it applied at the start of employment and has since fallen away, you should no longer rely on the clause.
The authority sets out what goes into the assessment:
- the employee’s duties and sector, and what is distinctive about them
- their position in the organisation, and their real access to information
- the nature of your operations
- your need for protection arising from trade secrets
- trade secrets, product development, customer relationships — whether you hold knowledge and know-how a competitor does not
- any special training you provided
Read that list as a filter rather than a checklist. A junior employee with no meaningful access to protected information does not become restrictable because the template says so.
There is no prescribed form. A non-compete can be a separate agreement or a clause in the employment contract, and it can be made at the start or later — when duties change, for instance. It works in both indefinite and fixed-term employment. One boundary: if it is made only after the employment contract has ended, the Employment Contracts Act’s non-compete rules no longer apply to it.
Write which duties are prohibited during the restriction period, and the geographic scope, into the agreement itself — their absence causes most of the arguments.
Next: take your contract template and ask, for the role it is used for, which of the six factors above you could actually evidence. If the answer is none, remove the clause rather than pay for it.
What does it cost?
The period during which the agreement restricts the employee after employment ends is the restriction period, and you pay for it.
| Agreed restriction period | Compensation | Maximum |
|---|---|---|
| Up to 6 months | 40% of the employee’s pay for the period | — |
| Over 6 months | 60% of the employee’s pay for the period | 1 year from the end of employment |
The authority’s own worked example: a EUR 3,000 monthly salary and a restriction period under six months means EUR 1,200 a month in compensation, at the 40% rate above.
Compensation is paid during the restriction period, on the pay cycle that applied during employment — the 15th of the month, say — unless you agree otherwise after the employment contract has been terminated. You can also agree to pay it as a single lump sum.
A contractual penalty may be agreed in place of damages. It is capped at the pay the employee received in the six months preceding the end of employment.
Next: multiply your standard restriction period by 40 or 60 per cent of a typical salary in the role, and see whether the number still looks like a sensible default across every contract you have issued.
Who is exempt from the time limit?
The maximum duration does not apply to an employee who, on the basis of their duties and position, is regarded as carrying out management work in a company, association or foundation — or an independent part of one — or as holding an independent position directly comparable to such a role.
Note what the test is and is not. It turns on the actual duties and position, not the job title. “Head of” in a title does not by itself put someone in this category, and a genuinely autonomous business-unit lead may fall into it without the word “director” appearing anywhere.
Next: list everyone whose non-compete relies on this exemption, and for each one check their actual duties and position against the test, not their title.
When does the non-compete not bind?
When the employment ended for a reason attributable to you. Redundancy on financial or production-related grounds is the clearest case: end someone’s employment because the work ran out, and the restriction you agreed does not apply to them.
It does bind where employment ended because of the employee’s own neglect, or another comparable reason relating to their person.
Set those two side by side and a useful conclusion follows. The non-compete protects you least in exactly the scenario where a competitor is most likely to hire your people — a restructuring. Grounds for termination are covered in Terminating employment in Finland.
Next: before you serve a redundancy notice, check whether the departing employee has a non-compete on file, and cross them off your enforcement list — the restriction will not bind them.
How do you get out of one?
You may terminate a non-compete by giving notice, and the notice period must be at least one third of the restriction period, and never less than two months.
The timing rule is the one to remember: that right ends once the employee has terminated their own employment contract. After they have resigned you no longer have a unilateral right to cancel. You can still agree with them that the non-compete does not apply and that no compensation is paid — but that now needs their agreement, not just your decision.
The practical consequence is that “we will decide about the non-compete if they ever resign” is not a strategy. By then the decision is no longer yours alone. If a clause is not worth paying for, terminate it while you still can.
Next: run a list of everyone currently under a non-compete, and for each one decide now whether you would pay 40 or 60 per cent to enforce it. Serve notice on the rest.
How does Taito.ai help with this?
Taito.ai is a people operations system. It sets up and keeps maintained the record of who is under a non-compete, on what terms, and since when — so the compensation, the penalty cap, and the cancellation window are always a query away.
Sources
- Employment Contracts Act 55/2001, Chapter 3, section 3 — competing activity
- Chapter 3, section 5 — non-compete agreement
- Occupational Safety and Health Administration — competing activity and non-compete agreements
Finlex publishes this act in Finnish and Swedish only. There is no citable official English translation, so every rule here is paraphrased rather than quoted. Where the exact wording matters, follow the link and read the Finnish or Swedish text.
Disclaimer
Taito.ai does not provide legal, tax or accounting advice. This article is general information about the law as it stood on the date above, not advice on your situation, and it is not a substitute for it. Rates and thresholds change. Check with a qualified adviser before acting on anything here.
