Restrictions to the non-compete clause?

Legal News

07 Mar '24

Author(s): Astrid van Toledo

The purpose of the non-compete clause is to protect the employer's competitive position, e.g. trade secrets, customer contacts, etc. The employer therefore has an interest in preventing an employee's transfer to a competitor from allowing that competitor to benefit from such valuable knowledge, insight and information. This objective was recently confirmed by the Supreme Court in its judgment of 17 June 2022.

Is the non-compete clause used in practice for its intended purpose?

Practice shows, however, that the non-compete clause is included in employment contracts even when there is no real protection of competitive position. The non-compete clause is often a standard clause in an employment contract and is therefore also included in the employment contracts of employees who do not come into contact with confidential business information, customers, etc. The government considers this undesirable.

This is because a non-compete clause can have far-reaching consequences for employees, affecting their fundamental right to choose their employment. It also hampers labour mobility.

Therefore, on 4 March 2024, the government submitted a bill for internet consultation to restrict the possibility of agreeing a non-compete clause.

What are the changes in the bill?

The main changes to the non-compete clause in the bill are as follows:

The duration of the non-compete clause will be limited to a maximum of 12 months.
The geographical scope of the non-compete clause must be explicitly mentioned in the drafting of the non-compete clause.
In the case of open-ended employment contracts, as is already the case with fixed-term employment contracts, written reasons must also be given as to why the non-competition clause is necessary for essential business or service interests.
If the non-compete clause is invoked, the employer must pay the former employee compensation amounting to 50% of the monthly salary for each month that the non- compete clause is in force.

Transitional law

No date of entry into force has yet been announced. Transitional law will apply, which should result in legally agreed non-compete clauses remaining in force before the effective date. This means that non-compete clauses agreed before the effective date do not have to comply with the formal requirements set out in points 1 to 3 above. However, the maximum duration of 12 months and the obligation to pay compensation if the non-compete clause is invoked will apply.