Non-compete, non-competition, business and partner relation clauses; learn why these stipulations are commonly included in employment contracts, when they are legally valid in the Netherlands, what makes them so important, and why you cannot ignore them.
What is a non-compete clause / non-competition clause / relations clause?
A non-competition or non-compete clause (in Dutch: concurrentiebeding) is a type of provision that is frequently included in employment contracts to protect the employer’s business interests after their employee leaves the company. Such a clause forbids an employee from being employed by or associated with a company that performs work or provides similar services to their current employer for a certain period of time after the end of their current employment agreement.
A comparable clause is the relations clause, which prohibits an employee from working for the employer’s clients, partners or business relations during a certain period after the term of the employment agreement.
Under Dutch law, all of these clauses (non-compete, partner relations, business relations) are subject to the same laws and requirements.
When is a non-compete clause valid in the Netherlands?
Non-compete clauses can be a substantial restriction of an employee’s freedom of choice in the workplace, so they are only valid and enforceable under certain restrictions.
In all cases, a non-compete clause is only valid:
- if is agreed upon with someone above the age of 18
- if it is agreed up on in writing, such as in an employment contract
- if the employee agrees to the condition in writing, for example by signing the contract.
Non-compete clause in a fixed term contract
Since January 1, 2015, fixed term employment contracts may not contain a non-competition or business relations clause – unless the employer explicitly states in writing the need for such a clause due to urgent business or service interests. If such an explanation is lacking, the clause is null and void.
An employer would therefore be wise to explain the necessity of a non-competition or business relations clause for each position specifically. Such necessity could be due to specific company knowledge that accompanies the function, or if the employer would be disproportionately affected by the employee moving to a competitor. The employer must therefore explain the specific urgent business or service interests and why these interests make it necessary to restrict the employee by imposing a non-compete or relations clause.
Non-compete clause in a permanent contract
A permanent contract doesn’t have this restriction. Parties can agree upon any post-contractual restrictive obligation they want. Employers prefer to include very wide-ranging non-compete clauses to protect their own interests, but as case law makes clear, this can be disadvantageous.
Non-compete clauses that are too far reaching, too vague and too long are frowned upon in court and are either set aside or limited. It is therefore advisable to formulate appropriate non-compete and relation clauses with details and specifications pertaining to each position.
One way of doing this is by annually reviewing the list of prohibited companies. Another way of doing this is by limiting the period to 12 months or sometimes even less, for example 6 months. This may prevent a court from later ruling that the scope of the clause is too broad and as a result wholly or partly disregarding it.
Violating the non-compete clause and paying penalties
Many employees seem to believe that they can violate their non-compete clauses without any further consequences. This is not correct. When employer and employee have properly agreed upon such a clause, it is legally binding.
If the employee violates their non-compete clause, this constitutes a breach of contract. In the event of a breach, the contractual penalty is immediately due and payable. The employee’s only recourse is then to request a court of law to reduce the suffered penalty.
Negotiation to end the clause
If an employee wants to work for the competitor or relation of their employer, they can of course take action. In these circumstances, the employee can inform the employer of their intention to leave and try to negotiate the conditions of their non-compete clause. The employee can claim that the clause will not stand in court because it is too far reaching or has lost its validity (due to another job or different responsibilities).
An employee can also claim that a new position will lead to a substantial improvement for him or her. The employee’s interests should therefore prevail above those of the employer.
Depending on the employee’s arguments, an employer may be willing either to limit the clause or to annul it. Whatever happens, the employee must make sure the clause is no longer in place before they start working for clients or competitors.
Interpretation: case law
A few years ago, a judge had to interpret a business relations clause in a case. The judge had to determine what was meant by “relation” and gave a very broad interpretation of this. He decided that not only existing relations but also contacts who might become relations fell within the scope of the clause.
The employee decided to appeal and the Court of Appeal judged that the interpretation given by the district court was too restrictive. Not only should the court have looked at the linguistics of the clause, but they should also take the entire context into consideration. In the opinion of the Court of Appeal, a general definition of a “relation of the employer” is not possible. Each case has to be looked at individually. Depending on the specific circumstances, one must determine who is a “relation” and who is not.
Key advice for employers
In general, it is wise to make sure the non-competition and/or relations clause are as clearly phrased as possible. Ensure the clauses protect essential business interests and explain why they are necessary for the specific role. The more you can limit the clauses, the more likely they are to be upheld by the courts in the event they are challenged.
Specifically, for a non-compete clause, limit the term of the prohibition to no longer than one year and limit the geographic span to the region where the employee has mostly worked. In the case of a relations clause, try to be as specific as possible and limit the term to no longer than a year.
Top 5 tips for employees about non-compete clauses
- If you are offered a new employment contract and it contains non-competition or relations clauses, read these thoroughly to understand how they will affect your future rights. If you feel that a clause is too restrictive, try to negotiate its scope to reach an agreement with your future employer before signing.
- If you do not understand the non-compete clause, or you feel there is something strange about the scope or the wording, seek legal advice before signing. A lawyer can help you understand the meaning, the potential impact on your rights, and the likely validity of the clause before you commit.
- If you are looking for a new job and a strict non-compete clause from your previous employment is preventing you from finding work, consult a lawyer to assess whether there is a legal basis to challenge that clause in court and get it set aside.
- Do not violate your non-compete clause after you have agreed to it. Employers can and may well impose a financial penalty on you if you breach the contract you signed with them. Do not rely on the idea that “they will never know”; the consequences can be significant.
- If you have already violated your non-compete clause – for example by starting working for a prohibited company, competitor or person – seek legal advice immediately. A lawyer can advise you on the best way to reduce potential penalties.
Get advice you can trust
If you need assistance or advice regarding a non-compete or relations clause, please contact us. Our team of employment lawyers can help you to find the best possible solution.