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21 Jul 2021 The non-competition clause, in the past, present and future

The legal regulation of the non-competition clause was introduced in 1907 and has hardly changed since. Recent research indicates that one in three employers almost always uses a non-competition clause as a standard clause in their employment contract, resulting in an estimated 3.1 million employees in the Netherlands being bound by a non-competition clause. However, the non-competition clause is not always used for its intended purpose. After 114 years, is it time for a radical change?

Reason for investigating non-competition clauses

An article in the Volkskrant newspaper at the end of 2019 about the improper use of non-competition clauses has set the ball rolling again after years. The article revealed that employers are increasingly using the non-competition clause to keep employees with them in the tight labour market instead of combating unfair competition. After questions were raised in Parliament, D66 and PvdA submitted a motion requesting an investigation into how the use of the non-competition clause can be limited to what is strictly necessary, taking into account the following three options:

  • Excluding the competition clause in fixed-term contracts;
  • limiting the maximum duration and geographical scope of the non-competition clause in contracts of indefinite duration; and
  • a minimum remuneration for the non-competition clause in contracts of indefinite duration.

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The Ministry of Social Affairs and Employment has responded and commissioned a study, taking into account the recommendations of the Regulating Work Committee (Borstlap Committee):.

  • Excluding the competition clause in fixed-term contracts; and
  • to only allow a non-competition clause in a contract for an indefinite period of time if the employer can justify the need on the basis of compelling business interests.

The final report was published on 25 June 2021.

Report: The effect of the non-competition clause

A total of 475 judgments on non-competition clauses were used in the study, resulting in an extensive 150-page report with many interesting findings. The main conclusions are briefly described below:.

  • The use of non-competition clauses is becoming increasingly widespread. One in three employers use a non-competition clause. They often do so with the aim of retaining employees in a tight labour market, not to combat unfair competition.
  • Many employers use a standard clause in the employment contract. As a result, a non-competition clause is sometimes used in a fixed-term contract without written justification. In contracts for an indefinite period of time, a non-competition clause is sometimes included without (good) reason, for example if an employee has no access to information about business relations or (company) sensitive information.
  • In many cases, employees are unable to interpret the effect of a non-competition clause at a detailed level. Because of the (often) limited bargaining power of employees, they often have little recourse against an (abusive) non-competition clause in the employment contract. Employees assume that the employer will not invoke the non-competition clause when the chips are down.
  • In practice, employer and employee will enter into consultation if the non-competition clause is breached, in order to seek a solution together. Legal proceedings about the non-competition clause are (increasingly) rare. In most cases, the non-competition clause is suspended. In cases where the non-competition clause is not suspended, the interests of both the employer and the employee must be weighed up. Employers are therefore running a risk when they use a standard clause in an employment contract.

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Time for change?

The non-competition clause has hardly changed since 1907 and the current labour market is crying out for a review of the clause. The research report has shown that the current operation and use of the non-competition clause and the recommendations of the Borstlap Commission give cause to take a close look at the non-competition clause. The aforementioned options will be worked out in the coming period and the Lower House will be informed at the end of this year.

Summary

The validity and scope of a non-competition clause are not always easy to determine. Moreover, the wording of such clauses is a tricky business. If you have any questions about non-competition clauses or if you require assistance in drafting a written motivation for the use of a non-competition clause in a fixed term employment contract, please contact SPEE advocaten & mediation.

SPEE advocaten & mediation Maastricht

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