Non competition contracts
Written by:
Hein Kernkamp
What is a non-competition contract?
A non-competition contract is an agreement between an employer and an employee in which the employee agrees not to enter into competition with the employer during or after employment. These legal contracts are concluded at the initiative of the employer in order to prevent employees from entering into markets or professions considered to be in competition with the employer.
Non-compete clauses and the conflict of interests of employer and employee
It is in the interest of an employer to prevent business secrets, customer files, and information about procedures and internal know how from ending up with the competitor. Under Dutch law, it is possible to include a non-competition or non-competition clause in the employment contract. An employee has an interest in being completely free to go wherever he wants after his employment. In fact, the right to work is a fundamental right, which is laid down, inter alia, in the Universal Declaration of Human Rights and the European Social Charter. This is therefore a typical case of conflicting interests. Every country has its own solution when it comes down to the validity of non-compete clauses. How is that arranged under Netherlands law?
Formal requirements for non-competition subject to Dutch employment law
The formal requirements set by law are that a non-competition clause can only be agreed with an adult employee and must be agreed in writing. An additional requirement is imposed on a non-competition clause in a fixed-term employment contract. When entering into the non-competition clause, the employer must then provide written reasons for the non-competition clause stating and explaining that it is necessary due to compelling business interests or service interests.
Finally, it follows from case law of the Supreme Court of the Netherlands that it can be required to reconfirm a non-competition clause in writing. This applies in particular in situations in which the clause, due to job changes and / or reorganisations, has come to rest considerably more heavily on the employee. This test must include whether the change in the employment relationship was reasonably foreseeable. If not, then the consequence could be that the non-compete clause has become invalid.
Annulation of the non-compete clause by the Dutch court
If, in the opinion of the court, the non-competition clause in the fixed-term employment contract is not necessary due to compelling business interests or service interests, this clause can be canceled by the court.
Every non-competition clause can be cancelled - in whole or in part - if, in relation to the employer's interest to be protected, the employee is unfairly harmed by that clause.
This can be done in ordinary proceedings before the subdistrict court. This is also dealt with in summary proceedings, such as when the employer demands a prohibition on forfeit of a penalty, or the employee requests a suspension of the non-competition clause.
An example of a non-competition clause
For example, a non-competition clause looks like this:
"Without prior written consent of the Employer the Employee shall be prohibited from entering the employ of or from working in any manner, either directly or indirectly, for any business that manufactures, sells or trades in the same or similar products as the Employer in the European Union, or from doing the same or similar work for his own account, for a period of two years after termination of the employment contract. A penalty of EUR 1,000 shall be forfeited by the Employee to the Employer for each violation of this provision or each day that the employee acts in violation of this provision."
Court intervention
Whoever reads this non-competition clause understands that the legislator has chosen to give the court the option to intervene where necessary. Forbidding someone to carry out their work for two years, unless he emigrates to a country outside the European Union goes very far. Experience shows that this type of far-reaching competition clauses cannot be fully enforced. But never say never. Assuming that the clause has been agreed with a person who is involved in the development of a secret super fiber, who has demanded a billion-dollar investment, the clause may be a little on the tight side. After all, he can then work for the direct competitor in the United States. A worldwide ban would then have been more obvious. Moreover, the fact that nowadays many things can be arranged from anywhere in the world from behind a computer makes the regional restriction of a non-competition clause less obvious.
Nature of the job
When a competition clause is concluded with a forklift driver, the clause is unreasonable. The cancellation by the judge is likely. It is even more obvious that in such cases the employer never agrees on a non-competition clause. The employer must have a reasonable interest.
Competition clause and commercial personnel
The majority of the disputes concern persons with commercial positions, where the employer has a major interest in maintaining the clause and the employee has a major interest in taking up employment with his new employer. He often achieves a position improvement there, such as a better salary, a higher position, a company car, etc.
Weighing of interests by the court
Both the employer and the employee often have clear interests, but they do not fail to add many false arguments. Case law contains a wide range of aspects that are taken into account by the court. Every argument that has ever been successful can help, and in these types of proceedings it often happens that a whole stack of arguments is used on both sides to get it right. In proceedings it is important to properly substantiate propositions with documents. Generally formulated arguments are easily passed.
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Do you have a question regarding non-compete clauses subject to Dutch employment law? We guide our clients in analyzing and subsequently resolving the case, whether by means of a settlement or procedure. Contact us without obligation. We do not charge any costs for briefly reviewing and discussing your situation with your. Our motto is not for nothing: "Your problem, our concern."
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