The Supreme Court has just determined that the start-up of own business does not observe the duty of mitigation under section 18a of the Salaried Employees Act (the Act). The employee was therefore not entitled to compensation under the non-solicitation clause.

Facts

A patent consultant resigned from his position with a major patent agency and was subject to a non-solicitation clause according to which he was not to have any business relations for six months after the effective date of termination with the employer's customers or co-operation partners with whom he had had business relations for the last 12 months.

Right after the resignation, he started his own business. His former employer then rejected to pay compensation as the employee by starting his own, independent business was not available for applying for other appropriate work thereby having set aside his duty of mitigation under the rules of the Act.

Under section 18a of the Act, a non-solicitation clause is only valid if the employee has received compensation for the term of the clause equivalent to minimum 50 % of the monthly salary. However, the employee is subject to a duty of mitigation meaning that he must try to obtain other income. If the employee obtains other income, the employer may set off this other income against the compensation thereby limiting its costs.

It was therefore for the Court to decide whether the employee by starting his own business had set aside the duty of mitigation thereby losing the right to compensation.

Maritime and Commercial Court ruling

The Maritime and Commercial Court found that the employee had not observed his duty of mitigation. The considerations behind the rules on non-solicitation clauses in section 18a of the Act and on non-competition clauses in section 18 are so similar that the same rules on compensation should apply. According to case law on non-competition clauses, start-up of a business would normally result in the employee being deprived of receiving compensation other than the minimum compensation in section 18.

Supreme Court ruling

The Supreme Court affirmed the Maritime and Commercial Court ruling. First of all, the Supreme Court specified that the rule on set-off in section 18a (3) of the Act on non-solicitation clauses corresponds to the rule on set-off concerning non-competition clauses, see section 18 (3), 1st sentence.

The Supreme Court thereby specified that in order to observe the duty of mitigation, the employee must actively apply for other appropriate work and cannot without a satisfactory reason be unemployed for the employer's account without applying for such appropriate work. Referring to the general rules of Danish law concerning duty of mitigation upon which the provision is based, the Supreme Court found that a decision as to whether the employee had observed his duty of mitigation should depend on a specific assessment.

The Supreme Court then stated a number of wider considerations as to what must be taken into account when assessing whether the duty of mitigation has been observed:

"The most decisive factor in this respect is whether the employee has obtained or has made reasonable efforts to obtain such other income which may reasonably taking into consideration the market and the employment be expected from a person with the relevant professional qualifications and experience, etc. It is not important whether this involves an employee or a self-employed person.

If an independent business is not or only to a limited extent profit-earning from the beginning, it may be necessary when assessing the income in the term of the clause to take into account the company's earnings after the expiry of the clause."

In the specific case, the Supreme Court attached importance to the fact that the employee should be considered highly specialised and experienced within patent advice and in possession of a significant earnings potential. After having compared the earnings of the independent patent business with the market conditions, the Supreme Court found that the employee's efforts to attract customers and earn money had been at a low level.

The Supreme Court therefore found that the employee should be considered only to have exploited a modest part of his skills and his potential, and that he had therefore observed his duty of mitigation to limit his loss. The employee therefore lost his right to compensation.

Comments

The Supreme Court ruling is in line with the general principles on the duty of mitigation previously determined by case law. The ruling illustrates that a decision in relation to the question on the duty of mitigation depends on a specific assessment in each case, and that it is essential when making this assessment that the employee has exploited his earning potential to a sufficient extent.

The content of this Newsletter is not, and should not replace, legal advice.

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Erik Wendelboe Christiansen

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Marianne Lage

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