Auditor merger conditional on the employees' release from non-competition and non-solicitation clauses

On 28 May 2014, the Competition Council approved EY's takeover of KPMG Danmark, provided that the parties committed to release a major group of employees from their non-competition and non-solicitation clauses and to reduce the notices of termination.

COMMITMENT TO RELEASE EMPLOYEES FROM NON-COMPETITION AND NON-SOLICITATION CLAUSES

The Council was concerned about the merger, and EY and KPMG Danmark therefore committed to release up to 200 employees from their non-competition and non-solicitation clauses and to grant long notices if they were employed with the new KPMG 2014. 

The Council found that this commitment would enable KPMG 2014 to establish itself on the market sooner and with increased strength thereby ensuring a continued stable and unchanged competitive situation on the market.  The Council therefore approved the merger making the commitment binding.

AUDITOR CLAUSES

The auditing business traditionally applies so-called auditor clauses, which are mixed non-competition and non-solicitation clauses. An auditor clause prevents a resigned employee from taking on assignments for the company's clients. Further, the clauses are entered into with key employees restricting them from carrying on competitive activities or taking up employment with a competing audit firm. 

In addition to the auditor clauses, which typically apply for one-two years, the business also uses relatively long notices of up to seven months in relation to employees with a certain seniority.

COMMENTS

The Council's demand to release the employees from the non-competition and non-solicitation clauses and to reduce the notices is specifically justified by the special employment law restrictions applying to the auditing business. The decision is, however, a good example of how employment law restrictions may affect the competitive consequences of a transaction and vice versa.

contacts

Finn Schwarz

Managing Partner

Maria Schmiegelow

Attorney