The non-compete or business relations clause

Godelijn Boonman

Many employment agreements contain a non-compete 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.

Updated

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

Since January 1, 2015 a non-compete or business relations clause is not allowed unless the employer has explicitly stated, in writing, the need for one due to urgent business or service interests. If such an explanation is not to be found, the clause is null and void.

What is meant by urgent business or service interests?

An employer has to explain the necessity of a non-compete for each specific role or function group. The employer needs to explain why that particular function makes a non-compete necessary. It could be specific and company knowledge which come with the role. It could be the fact that the employer would be affected disproportionately if the employee moved to a competitor and would thus have an unjustified advantage.

For definite or temporary contracts, an employer must explain the specific urgent business or service interests and also why they make it necessary to restrict the employee by imposing a non-compete or relations clause.

Consequences
One big misunderstanding is that many employees seem to believe that these clauses can be violated without any consequences. This is not correct. When such a clause has been agreed upon properly – namely in writing and with an employee above the age of 18 – it is binding. In the case of a breach of the clause, the employee will incur an immediately payable contractual penalty. Having incurred this penalty, an employee can only ask a court of law to mitigate the incurred penalty. It cannot be removed entirely.

Negotiate
Of course an employee can take action if they want the clause to no longer apply. Mostly an employee will inform the employer of their intention to leave and will then try to negotiate. An employee can claim that the clause will not stand up in a court of law 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. The employee’s interests should therefore prevail above those of the employer. Depending on the employee’s arguments, an employer may be prepared to either limit the clause or to annul it.  Whatever happens, an employee must make sure the clause is no longer in place before they start working for clients or competitors.

Interpretation
The next question which often arises is whether the clause will indeed be violated if the employee decides to do what they are intending. In other words: what is the interpretation of the clause? Is the new employer a competitor or a client? In a case a few years ago, a judge was asked to interpret a business relations clause. He had to determine what was meant by “relation.”

The cantonal court gave a very broad interpretation of the word “relation.” The court 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, the whole context should have been taken into consideration. In the opinion of the court of appeal, a general answer to the question whether can be spoken of a relation of the employer is not possible. Each case has to be looked in to individually and depending on the specific circumstances one must determine who can be seen as  a relation.

In general it is wise to make sure the non-compete and/or relations clause are as clearly worded 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.

If you have questions about a non-complete or business relations clause in your employment contract, don’t hesitate to get in touch with one of our lawyers.

Your feedback