A common provision in employment contracts is the non-competition clause and the matching non-solicitation clause. These provisions restrict an employee's right to free choice of employment. We explain when these restrictions are permitted.
The competition clause
Non-compete
These clauses are legally regulated in Section 7:653 of the Dutch Civil Code are referred to as "a clause between the employer and the employee by which the latter is restricted in his ability to work in a certain manner after the end of the contract". For a valid clause, some formal requirements apply, which will be briefly discussed here. A restriction in a fixed-term contract is subject to even more stringent requirements, which are discussed in detail below.
Agreed in writing
The restriction must be agreed upon in writing between the employer and the employee. It is not enough if the clause is included somewhere in a personnel handbook and reference is made to this handbook in the employment contract. The employee must also have been able to take note of the non-competition clause immediately at the time of signing. Employers are therefore well advised to include the non-competition clause directly in the employment contract.
Employee is of age
If the employee is not of age at the time of signing, no valid clause can be agreed. It is generally accepted that this refers to the age limit of 18 years. A non-competition agreement concluded with a minor is not valid and does not automatically become valid when the employee reaches the age of majority. In this case the clause must be re-negotiated.
If the formal requirements of Section 7:653 of the Dutch Civil Code are met, a legally valid non-competition clause has, in principle, been created in an employment contract for an indefinite period. However, there is an additional requirement for a fixed-term employment contract.
Fixed-term non-competition clause
A non-competition clause in a fixed-term employment contract is not legally valid unless a written justification is included immediately with the provision showing that the clause is necessary because of the employer's important business or service interests.
This justification must be sufficiently specific to the employer's interests in including the non-competition clause with this employee (or this position). If the motivation is insufficient, the clause is not legally valid. Even if the motivation shows that the clause is not necessary to protect the interests of the employer, a judge can annul the clause.
If it turns out that an employer includes the same restrictions in all agreements with its staff and justifies them in the same way, this may be reason for a court to find that the justification has not been made sufficiently specific to the provision at issue. It is therefore important to always consider whether the non-competition clause is necessary and what interests need to be protected.
Balance of interests
Even if it is established that the non-competition clause is valid (for fixed and indefinite contracts), the court may find that the employee is unfairly disadvantaged by the clause in relation to the employer's interest to be protected. The judge may then set aside the clause in whole or in part or decide that the (former) employer must pay compensation during the period that the employee is obstructed in his free choice of employment. How broadly the non-competition clause is drafted will also be of importance.
The employer's interest in enforcing the non-competition clause must primarily be in protecting the company's assets. This involves the protection of specific knowledge and goodwill that the employer has built up within the business. By enforcing the non-competition clause, the employer can prevent relevant commercial and technical information, unique work processes or strategies, and knowledge about customers and relationships from falling into the hands of competitors.
The interests of the employee can be diverse and will also vary from person to person. Several factors that can often come into play are:
- The intended position and new employer;
- A significant improvement in working conditions;
- Advancement opportunities that were not possible with the former employer;
- Who took the initiative to terminate the employment contract;
- Availability of functions outside the ban;
- Bound the employee to the industry in which he was employed by specific skills and/or knowledge.
Agreeing to a non-competition clause in an employment contract requires due consideration on the part of the employer and the employee should certainly be aware of the possible consequences of the clause. If you have any questions about a non-competition clause, non-solicitation clause or other aspects of an employment contract, please contact our employment law specialists.