Non-competition clause alert | June 2023

Modernisation of the non-competition clause
According to the Dutch Ministry of Social Affairs and Employment, the non-competition clause under Dutch law is currently unnecessarily restrictive. The government therefore intends to reform the current rules regarding the non-competition clause. What are the current rules and what will change?

Non-competition clause and relationship clause
A non-competition clause offers the possibility of restricting competing activities of an employee after their employment contract ends. Such clause prohibits the former employee from entering into employment with a competitor. In practice, besides a non-competition clause, a relation clause is often also agreed upon. A non-solicitation clause does not prohibit joining a competing company, but rather approaching customers/relationships of the former employer.

Current provisions of the non-competition clause
Article 7:653 of the Dutch Civil Code currently contains the following provisions regarding the non-competition clause:

• A non-competition clause is only valid if the clause is agreed in writing with an adult employee.
• A non-competition clause can only be included in a fixed-term employment contract if it can be justified that the clause is necessary because of important business or service interests.
• The employer cannot derive any rights from a non-competition clause if the termination or non-continuation of the employment contract is the result of serious culpable acts or omissions by the employer.
• The court may set aside a non-competition clause in whole or in part if the employee is unfairly disadvantaged by it, in relationship to the employer's interest to be protected. However, the burden of proof of this lies with the employee.
• The court may also determine that the employer must pay compensation to the employee for the duration of the restriction if the employee is significantly impeded from working other job’s than for the employer.

New non-competition clause rules
In 2021, a study was conducted for the Ministry of Social Affairs and Employment on how the non-competition clause functions in practice. The research report identified the problem that many non-competition clauses are worded so broadly that it can lead to an unjustified restriction on employees. This affects the proper functioning of the labour market, as it restricts employees from changing jobs and remaining employed within their expertise and specialism. The government considers it important to prevent the unnecessary use and retention of employees under a non-competition clause in order to not impede optimal job allocation and labour mobility. Therefore, the minister is preparing a bill to reform the non-competition clause. The minister’s letter to the House of Representatives dated 2 June 2023 shows that the following adjustments are part of this planned reform:

• the non-competition clause will be legally limited in duration;
• when including the non-competition clause, the geographical scope must be included, specified and justified;
• when including the non-competition clause, employers will also have to justify 'the serious business interest' of including a non-competition clause in permanent employment contracts;
• when the non-competition clause is invoked, an employer will in principle have to pay compensation, set at a percentage of the employee's last earned salary determined by statutory provision.

Existing contracts
The details of the proposed adjustments and when they will apply are not yet known. The minister expects to offer the bill for internet consultation by the end of 2023. For now, it is not yet known whether the adjustments will also apply to already existing valid non-competition agreements. We will keep you informed