The non-competition or business relations clause

Godelijn Boonman

Many employment agreements contain a non-competition clause or business relations clause. Employees would usually prefer to not agree to such a clause but they want the job and don’t want to annoy their new employer, so they sign.

Change in law

Since this post was first written, the rules have changed for temporary contracts. As most employees start out on a temporary contract, be sure to take notice of the changes in the law.

Since January 1, 2015 contracts may not contain a non-competition or business relations clause. This is, 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.

Urgent business or service interests

An employer has to explain the necessity of a non-competition or business relations clause for each position specifically. Necessity could be due to specific company knowledge which comes with the function. It could be the employer being disproportionately affected in the case of the employee moving to a competitor.

The employer must 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.

Violation of a clause

Many employees seem to believe that they can violate these clauses without any further consequences. This is not correct. When employer an employee agree upon such a clause properly – namely in writing and with an employee above the age of 18 – it is legally binding. In the case of a breach, the employee has to immediately pay a contractual penalty. The employee can request a court of law merely to reduce the suffered penalty. The court cannot remove the penalty entirely.

Negotiation to end the clause

Of course an employee can take action if he/she no longer wants the clause to apply. In this case, the employee informs the employer of the intention to leave and tries to negotiate. 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 to either limit the clause or annul it.  Whatever happens, an employee must make sure the clause is no longer in place before they start working for clients or competitors.

The next question which often arises when the clause is still part of the contract: is there a violation of the clause when the employee decides to do what they are intending? In other words: what is the interpretation of the clause, is the new employer either a competitor or a client?

Interpretation: case law

A few years ago, in a case, the judge had to interpret a business relations clause. He 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 which 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 lower court was too restrictive. Not only should the court have looked at the linguistics of the clause, but also had to to 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.

Advice

In general, it is wise to make sure the non-competition and/or relations clause are as clearly phrased as possible. Try to negotiate and make the clauses as limited as possible. In the case of a non-compete, the term should not be longer than one year and the geographic span can be limited to the region which 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.

Contact

If you have questions about a non-competition or business relations clause in your employment contract, please do not hesitate to get in touch with one of our lawyers.

Update article: December 2017. 

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