Non-compete clauses are a widely used tool in the business world to safeguard a company’s commercial interests, particularly in the context of mergers and acquisitions. Such clauses are intended to prevent the seller from immediately establishing a competing business or approaching the clients and contacts of the acquired company. However, these agreements are not without legal risk. A clause that imposes an excessive restriction on competition may infringe competition law. This could render the clause null and void or expose the infringing party to fines.

The prohibition on anti-competitive agreements, as set out in Article 6 of the Dutch Competition Act and Article 101 TFEU, sets clear limits on the permissibility of restrictions of competition between undertakings. The European Commission’s notice regarding restrictions ancillary to concentrations states that a non-compete clause may generally not exceed two to three years, depending on the transfer of goodwill and know-how. But how strictly is this standard applied in practice? This article explores the issue further.

Developments in case law

Recent case law shows that courts are increasingly scrutinising non-compete clauses in the context of business transfers, with particular attention to their duration, scope, and necessity. Three recent cases illustrate this trend: .

• The role of reasonableness in filling the gap: A retired notary sold his practice to a former candidate-notary. Their share purchase agreement included a non-compete clause prohibiting the former notary from operating within a 25 km radius of the office. However, the clause failed to specify a duration, creating a gap. The District Court of Overijssel ruled that this gap had to be filled with a reasonable term. Striking a balance between the buyer’s interest in avoiding competition and the seller’s right to professional freedom, the court held that a three-year term was reasonable. This aligns with European guidelines and fairly reflects the interests of both parties. Read the full judgment here.
• No noticeable restriction of competition: In another case, a company active in explosion-proof transport systems sold its shares to another undertaking. A three-year non-compete clause was agreed. However, the seller established a competing business within that period. The buyer relied on the clause, but the court found that the buyer had failed to demonstrate an appreciable restriction of competition. As a result, the clause remained enforceable. This judgment illustrates that a non-compete term exceeding two years does not automatically contravene competition law. Read the full judgment hier.
• Duration alone insufficient for nullity: In proceedings before the District Court of Gelderland, a dispute arose between oral surgeons who had previously worked together in a partnership. Upon going their separate ways, they agreed on a non-compete clause lasting five years. Its validity was contested, partly on the grounds that it exceeded the three-year term recommended by the European Commission. The court, however, held that exceeding the indicative term was not in itself sufficient to establish a breach of competition law. The content of the agreement and the underlying intentions of the parties carried more weight than the formal duration. Read the full judgment here.

.
Conclusion

Non-compete clauses can be highly effective in protecting the value of a business following an acquisition. At the same time, there is a real risk that such clauses may infringe competition law, particularly if they go too far or lack sufficient justification. Recent case law shows that courts do not automatically adhere to the strict timelines set out in the Commission’s notice regarding restrictions ancillary to concentrations. More important is whether the clause is proportionate, necessary, and well-substantiated in light of the transaction and the interests involved.

For business owners, this means being critical, specific, and diligent when drafting a non-compete clause. Focus not only on the wording but also on the rationale. This will help you avoid legal complications and stay within the bounds of competition law.

Do you have questions about non-compete clauses or other corporate law matters? SPEE advocaten & mediation is happy to provide you with expert advice and practical solutions.