The non-competition clause as a written record
Every employer fears it: employees who defect to a competitor and want to share trade secrets with their new employer for a higher salary. In principle, an employee has the right to choose freely which work they wish to perform. However, you can agree on a non-competition clause with your employee to restrict their options after employment. In that case, the employee is not allowed to work for a competitor after the employment contract has ended.
A non-competition clause aims to protect your business operations. It is therefore important that you agree a valid and well-formulated non-competition clause with your employee. As an employer, you must clarify why compliance with the non-competition clause is in your interest. This interest must outweigh the interest in the employee’s free choice of work.
Much has been written and litigated about the non-competition clause. It is clear that strict requirements are set for agreeing a non-competition clause. For example, a non-competition clause must have been agreed in writing and a non-competition clause in a temporary contract is in principle invalid, unless there are compelling business interests. In a recent case, the assessment of the non-competition clause was in favour of the employer.
In this case, the employee and employer had agreed on a non-competition clause. The clause had a term of one year after the end of the employment relationship. Following on from his employment, the employee started working for a major competitor of his ex-employer. The employee stated that he would earn more than 90% more wages at the competitor. According to the employee, the non-competition clause limited him in his right to free choice of employment. He also stated that the employer had no reasonable interest in enforcing the non-competition clause. The clause had to be suspended for that reason, according to the employee.
The court did not agree with the employee’s views. Firstly, it was stated that the interests of the employee and employer must be weighed against each other on a case-by-case basis. In this context, the employer’s interest should not be to counter competition in general. The employer must want to prevent the ex-employee from giving himself and his new employer an unfair advantage by acting competitively.
The employer had made this interest sufficiently clear in this case. In addition, the nearly doubling of the employee’s salary was insufficient to respect the switch to the competitor. The amount of the salary was correctly regarded by the court as buying away knowledge.
Make the necessity concrete and think of the penalty clause
To be legally valid, a non-competition clause must have clear boundaries. Your organisation must have an interest in all these boundaries that outweighs the employee’s right to free choice of employment.
The starting point is: the broader the clause, the sooner a judge will moderate or even suspend it. Have you not agreed on a non-competition clause with your employee? In that case, the employee is in principle free to enter employment with a competing organisation or to start his own business. Yet the employee is somewhat limited in this. In that case, too, the employee may not compete unfairly. This is the case when the employee, because of his knowledge of the working method, the customer base and the trade secrets of his ex-employer, enjoys an unfair advantage from his new employer.
The formulation of a non-competition clause is very important for its validity. It is therefore advisable to lay down the need for this for your business operations as concretely as possible in the employment contract. Do not forget to add a penalty clause.
Do you have a question? Please do not hesitate to contact me.
‘S-Hertogenbosch Court of Appeal, July 30, 2020, ECLI (abbreviated): 2435
This article previously appeared in Rendement.
Seliz works as a lawyer within the Employment & Pension law section of GMW lawyers. She advises both national and international employees and employers. Seliz is called in to assess settlement agreements, non-competition clauses, dismissal and for drafting tailor-made employment contracts.