The change in legislation regarding the non-compete clause

Most permanent employment contracts in the Netherlands include a non-compete clause. This clause determines that you are not allowed to work for a competing company for a certain period of time within a certain region.  

The wording of a non-compete clause is often very broad. This means there is a high chance that a non-compete clause will be a problem when you want to apply for a job with a new employer, especially if you work in a small and specialized industry.

Changes

Now, a proposed bill has been introduced that will change the legislation of these non-competition clauses. On March 1, 2024, the Council of Ministers approved this bill. It is expected that the law will come into force in early 2025. The bill was introduced because, according to the legislator, research shows that the clause is often included as a standard clause in employment contracts by employers without considering the interests of the employee. According to the legislator, the non-competition clause is often used for the wrong reasons. This causes employees to be restricted from changing jobs and continue to work within their expertise and specialty.

In this article we compare the legislation of the current law and the proposed law. And we also provide an explanation of how to take legal action against a non-compete clause.

The current law

The legislation that is now in place sets forth two requirements for a non-competition clause in a permanent employment contract to be valid: it must be in writing and the employee must be over the age of 18. If these two conditions have been met, the clause is legally valid.

The proposed law

The proposed law imposes additional requirements for a non-competition clause to be valid. First, a non-competition clause can only have a temporal scope of one year. A non-compete agreement entered into for an extended period of time is null and void, as is a non-compete agreement that contains no duration. Second, the non-competition clause must include a geographical scope. This means that the clause must specify whether the clause applies only within a certain radius of the company or, for example, throughout Europe. Third, the non-competition clause must contain a written justification of the substantial business or service interest that justifies the restriction. Without this justification, the non-competition clause is not valid. This already applies to fixed-term employment contracts, but will then also apply to employment contracts entered into for an indefinite period.

In addition to the above requirements, the employer must pay the employee a compensation when he invokes the non-competition clause. A similar arrangement is already in place in a number of other European countries.  The compensation is at least half of the employee’s monthly salary for each month that the non-competition clause is in effect, or a higher amount if agreed upon. The compensation must be paid no later than the last day of the contract of employment.

Invoking the non-competition clause must, in principle, take place one month before the end of the employment contract. In case of situations where the employer could not yet know one month before the end of the employment contract that the employment contract would end, the clause must be invoked within two weeks of the notice. This is the case, for example, in the event of summary dismissal or termination by the employee.

When the proposed law has come into force in 2025, the current rules will continue to apply to non-competition agreements concluded before the effective date of the news law. This means that non-competition clauses with a scope for more than 1 year and/or without a geographical scope, will not have to be amended. The employer can still invoke these clauses. After the law takes effect, however, the employer must always pay a compensation to the employee if the non-competition clause is invoked. This also applies to non-competition clauses that have been agreed upon before the law takes effect. 

Legal action

Under both current law and the proposed law, it is possible to ask the court to suspend the non-compete clause. The court can then dismiss the non-compete and set it aside completely or partially. In the case of partial termination, for example, the term for which the non-competition agreement was agreed upon can be shortened.

In court, the judge will assess whether the employee would be unfairly disadvantaged by the non-competition clause in relation to your employer’s interest to be protected. The retention of employees may not in itself be part of your employers’ interest to be protected. The non-compete clause is designed to protect the employer’s business assets from impairments. The mere fact that an employee goes to a competitor does not automatically mean that business assets are also affected.

When determining whether the non-compete clauses should be (partly) waived, the judge weighs the interests of the employee and the employer. The judge will look at all the circumstances of the situation, for example:

• The degree of attachment to the industry;
• The possibility of a position improvement;
• Personal circumstances (family / living conditions / affiliation to region);
• The investments that the employer has made in the employee;
• The question of who initiated the termination;
• Whether the new position involves a lot of competition-sensitive knowledge.

More information

If the new law goes into effect, it will have a significant impact on the use of non-competition clauses. If you have questions about your current non-competition clause or the new legislation, don’t hesitate to contact us.