Recht van nu 9 English 9 The non-compete clause

The non-compete clause

30 sep, 2022

During the term of the employment agreement, many employees become familiar with business-sensitive information from their employer. For employers, it is often undesirable if the employee uses this information against the employer after the employment agreement has ended. This risk arises, for example, if the employee switches to a competitor or starts a competing company himself.

To mitigate these risks, the employer can negotiate a non-competition clause with its employee. In Dutch such a clause is called “concurrentiebeding” or “non-concurrentiebeding”. Such a stipulation is often accompanied by a fine. However, if the employer wants to hold the employee accountable for a possible violation of that clause, a number of conditions must be met.

What is a non-compete clause?

Before discussing the conditions, it is good to first consider what a non-compete clause is. The law defines a non-compete clause as “a clause between the employer and the employee which limits the latter’s ability to work in a certain way after the end of the contract”.

A prohibition to enter into employment with relations of the employer

A prohibition against entering into employment with the employer’s relations also limits an employee’s employment opportunities after the end date. Nevertheless, for a long time it was debated whether such a clause was actually a non-competition clause. As a result, some judges placed fewer conditions on such a clause than on a non-compete clause. In its decision of March 3, 2017, however, the Supreme Court (Hoge Raad) ruled that such a clause also falls under the rules of a non-compete clause.

The terms of a non-compete clause

The clause must be laid down in writing

In the first place, the clause must be agreed in writing. This does not mean that the parties must have signed the document containing the non-competition clause. Depending on the circumstances, the non-competition clause can also be included in an appendix to the employment contract, for example in an office handbook, or recorded via e-mail.

The employee must be of age

In addition, the employee must be of legal age at the time of signing. If the employer is of age when the employment agreement ends, but the non-compete clause signed when he was a minor, he is not bound by it. When an employer enters into an employment contract with a minor, he will therefore have to wait until the employee has reached the age of majority before establishing the non-competition clause.

The type of employment agreement

A contract for an indefinite period

In principle, a non-competition clause can only be entered into with employees who enter employment for an indefinite period of time.

A fixed-term contract

If the employer is of the opinion that the clause is necessary due to compelling business or company interests, he can also stipulate a non-competition clause in a fixed-term contract. In that case, however, he must properly substantiate in writing what those compelling business or company interests consist of.

Void vs. voidable

If the employer fails to substantiate in writing in the non-compete clause what his compelling business or company interest is, the non-competition clause is null and void (nietig). This means that the employer cannot invoke it. It is deemed never to have been legally concluded.

If the employer did include a written motivation in the employment contract, but this does not qualify as compelling business or company interest, the non-compete clause is voidable (vernietigbaar). In that case, the clause is deemed to bind the parties, but the employee can evade that binding by annulling (vernietigen) the clause.

The difference between these two scenarios seems minor, and in most cases will be minor. In both cases, the effect of the clause basically comes to an end. Yet the outcomes of the two situations can be completely different. This is because a void clause (een nietige bepaling) can never become valid. After all, it never bound the parties. Conversely, the employee’s power of nullification (vernietigen) can lapse. This occurs, for example, as soon as the contract is extended for an indefinite period.

Severely culpable act or omission

The employer cannot derive any rights from the non-competition clause if the termination or non-continuation of the employment contract is the result of severely culpable acts or omissions on his part.