Competition clause restricted?

Published by: Sebastian van den Brink posted on 5 July 2022 reading time

One in three employers has included a non-competition clause as standard in its employment contracts with its staff. The clause is regularly used to deter employees from working elsewhere. Both legislators and judges remain critical of the improper use of this clause. What are the latest developments?

In 2015, the Work and Security Act prohibited the non-competition clause in fixed-term employment contracts unless written reasons are given demonstrating the employer's interest in restricting the employee's free choice of employment. In 2021, at the request of the Lower House, research was carried out into the operation of the non-competition clause. The research shows that the non-competition clause influences the choices and free choice of work of employees, while the employer does not always have an interest in enforcing it. Last month, the Supreme Court ruled on the purpose of the non-competition clause. Reason enough to take a closer look at the subject again.

Article 7:653 BW

The non-competition clause is not mentioned as such in the law. Article 7:653 of the Civil Code refers to "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". This definition may include:

  • The non-competition clause: you shall not enter the service of the competitor;
  • The relationship clause: you shall have no contact with relations such as customers and suppliers;
  • The anti-recruitment clause: thou shalt not persuade any former colleague to resign.

This enumeration is not exhaustive; other provisions may also fall within the scope of Section 7:653 of the BW if the employee is restricted in his freedom to choose how he works.

Purpose of the non-competition clause

The Supreme Court emphasises that a non-competition clause may not be used to discourage employees from leaving. Even if the continuity of the business is at risk and there is a tight labour market, the employer may not use a non-competition clause in this way to retain staff.

The Supreme Court emphasised that the non-competition clause is intended to protect the employer's business assets. The business assets are the specific knowledge (such as relevant commercial and technical information or unique working processes and strategies) and goodwill (customers and/or relations) that the employer has built up within the company. The new employer could then benefit from the knowledge gained by the employee. The non-competition clause should prevent the business from being damaged by the employee moving to a competitor.

The mere fact that an employee has acquired knowledge and experience in the performance of his duties does not mean that the employer's business is affected when that employee leaves (whether or not to a competitor). Employees gain experience once in the performance of a function. The disappearance of that experience and knowledge is inherent in the departure of the employee.

How to proceed?

In the study for the Lower House, it is pointed out that in other countries the non-competition clause is covered by more guarantees. For example, there are legal maximums or the former employer is obliged to compensate the employee in money during the period that the non-competition clause applies. For the time being, there are no plans to introduce such safeguards in the Netherlands.

An employee who is hindered by the enforcement of a non-competition clause will have to apply to the court to have the clause suspended. The court will assess the validity and, after weighing up the interests, may suspend the clause in whole or in part. If the court considers the employer's interest in enforcing the clause more important, the clause will continue to apply in full.

Do you have questions about the inclusion of a non-competition clause in your employment contracts or are you concerned about the enforcement of a non-competition clause? Please contact our employment law specialists.