Non-competition clauses for employers
A non-competition clause limits the employee in the opportunity to work elsewhere after his employment contract. It is important for the employee to be able to continue practising his trade, which is why strict requirements are imposed on the agreement of a non-competition clause. The (former) employer may only under strict conditions protect his market position by means of a non-competition clause. GMW lawyers advises both employers and employees on non-competition clauses.
Formal requirements of a non-competition clause
The non-competition clause must be agreed in writing with an employee of full age. If the clause is included in a temporary contract entered into on or after 1 January 2015, an additional requirement applies. In that case the employer must substantiate in writing why the non-competition clause is important due to substantial business or service interests.
If one of these requirements is not satisfied, the non-competition clause is void and the employer cannot invoke it after the end of the employment.
If the formal requirements have been met and the non-competition clause is valid, the clause is assessed on its substance.
If the clause relates to a temporary employment contract, the Court will assess whether the non-competition clause is necessary due to substantial business or service interests. It is assumed that the employer cannot suffice by stating that there are substantial business interests which necessitate the non-competition clause. The employer must substantiate which specific substantial interests it concerns and why this restricting clause is necessary. This must show that the advantage for the employer from the non-competition clause outweighs the disadvantages of this for the employee. This is a stringent test. The general rule is that a non-competition clause in a temporary contract is not permitted.
The Court can also declare a non-competition clause in an employment contract for an indefinite period of time to be (partly) inapplicable. The content of the non-competition clause must therefore be tailored to the nature of the company and the type of work carried out by the employee. The length of the non-competition clause must be tailored to the length of the employment contract. Employees can claim suspension of a non-competition clause in interlocutory proceedings if the clause prevents them from working anywhere at all for example. The Court always balances the interest of the employer in upholding the clause – such as protection of the products, services and clients – with the interest of the employee to be able to work elsewhere.
Finally, the court can order the employer to pay compensation to the employee. In that event, the employee is financially compensated for the fact that he cannot work in a similar position elsewhere due to the non-competition clause.
Change of role
In the event of a drastic change of position, it is possible that the non-competition clause is no longer, or no longer fully, applicable. If there is a change of position it is therefore important to review the content of the non-competition clause.
Instead of the non-competition clause, an employment contract may contain a non-solicitation clause. It means that the employee may work at a competitor of his former employer, but he may not service or approach clients/relations of the former employer. It depends on the type of business whether a non-solicitation clause, a non-competition clause or both give the employer the best protection. The above rules also apply for entering into a non-solicitation clause.
A non-competition clause has in any case always a preventative effect; there are not many employees who are willing to take legal action on this before the end of the employment contract. The employee who, without consulting and without the consent of his (former) employer takes up employment with a competitor, takes a risk. A risk of having to pay a contractual penalty for example.
GMW lawyers can advise on drafting or assessing the text of a non-competition clause or non-solicitation clause. We can also advise as to non-competition clause proceedings. If you have questions about this topic or you wish to discuss a case, please contact our employment law experts.