16 April 2024

Controversy about the non-compete clause

By Koen Vermeulen

The non-compete clause is not ‘set in stone’. In practice we see many conflicts and proceedings about the non-compete clause, especially in the current tight labour market.

The legislature is taking action: a legislative proposal is likely to follow in late 2023 with the aim of limiting non-compete clauses and giving both the employer and the employee more clarity in advance. This would ease restrictions on workers changing jobs, while employers would still have plenty of options to protect company assets.

Non-controversial legislative proposal late 2023

The outgoing cabinet will continue preparations for this amendment to the non-compete section of the law (Article 7:653 of the Dutch Civil Code (Burgerlijk Wetboek)). The fact is that the Lower House does not want the issue to be controversial. What potential effect could this have for the non-compete clause?

  • The maximum duration will be limited to one year. In our experience, this is already common practice and Courts also quite often limit non-compete clauses with a longer duration.
  • An employer who wants to bind an employee to a non-compete clause must now pay a fee. This already applies in Germany and Belgium, for example. In the Netherlands, an employee can currently request a Court to order their former employer to pay compensation for the period during which the non-compete clause is in force, although this rarely happens in practice (Article 7:653(5) of the Dutch Civil Code). Typically, preliminary relief proceedings end in an all-or-nothing approach: either the non-compete clause is suspended for part of its duration or upheld.
  • The non-compete clause must have a limited geographical scope.
  • From now on, the employer must also substantiate the necessity and substantial business interest involved in a non-compete clause in a permanent employment contract. This requirement already applies to the inclusion of a non-compete clause in a temporary employment contract.

In 2006, a similar proposal to amend the non-compete clause regulations was defeated in the Upper House. Given the current political situation, the issue is whether the changes currently being announced will materialise. But at least the outgoing cabinet can continue preparing and tabling the legislative proposal. This will most likely take place by the end of the year.

Controversy between employer and employee about non-compete clause

In the meantime, we see a lot of discussion and also litigation between employers and employees about non-compete and non-solicitation clauses. This may be related to the fact that in times of scarcity, employers may want to use the non-compete clause as a ‘loyalty clause’, i.e. to prevent an employee from leaving the company. The Supreme Court (on 17 June 2022) and earlier lower courts have made it clear that retaining employees cannot and should not be the objective of and reason for invoking a non-compete clause. A non-compete clause is intended to protect the employer’s market position: its business assets, know how, good will, trade secrets and business relationships.

Advice for employers

It is precisely to emphasise this importance and to avoid ambiguity or controversy with the employee that it is wise for employers to extensively motivate the importance and necessity of a non-compete clause in employment contracts. In other words, instead of a succinct generic non-compete clause, it is wise to emphasise the company’s interests in relation to the employee’s person, position and specific knowledge of the company. Ultimately, a discussion about the validity, suspension or annulment of a non-compete clause always involves a balancing of interests. We are happy to advise you on how to be best prepared for this! Of course, we will also keep you updated on the upcoming legislative proposal to restrict the non-compete clause.

More information

If you have any questions or would like more information, please do not hesitate to contact us. Our labour lawyers are ready to help you.

Koen Vermeulen

Koen Vermeulen

Lawyer / associate partner

Koen Vermeulen is your sparring partner for all questions on employment law, employee participation and pensions.

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