EMPLOYMENT CONTRACT
A non-compete clause is not only included in the employment contract between employer and employee, but can also be agreed in a contract for services between client and contractor. However, the fact that the parties have agreed it does not always mean that the clause is legally valid. This blog discusses the conditions a non-compete clause must meet.
What is a non-competition clause?
What exactly is the non-competition clause and what are its consequences? According to Art. 7:653 of the Civil Code, an employment contract between an employer and employee can include a clause that restricts the employee from working for a competitor after the end of the contract. Therefore, we also call this a 'post contractual clause'. This can have very significant consequences, as the employee's freedom to work is restricted for a certain period of time.
Non-competition clauses come in many shapes and sizes. It often prohibits the employee from working for a competitor. The clause may also stipulate that the employee may work at a competitor, but may not approach customers of old employer at the new employer. This is also known as a ‘non-solicitation clause’ . Such a clause can put an employee at a great disadvantage in the search for a new job.
The question is therefore whether such a non-competition clause is reasonable. To determine this, we look at the circumstances of the case. Consider the duration and the scope of the clause. A non-competition clause for ten years will not be considered reasonable. Similarly, a clause stipulating that a supermarket manager is no longer allowed to work for another competing supermarket across Europe will not stand. The non-competition clause will then be considered unreasonable.
Competition clause conditions
According to the law, a non-competition clause cannot be agreed just like that. There are certain conditions attached to this. Summarised, these are the following conditions:
- It must be an open-ended employment contract;
- In some cases, a non-competition clause can be agreed in a fixed-term employment contract. This is only possible if the employer motivates in writing that the non-competition clause is necessary because of important business or service interests. Specific activities or jobs must be involved, for instance. This needs to be weighed up by the court on a case-by-case basis;
- The clause must have been agreed in writing with an adult employee;
- If the termination of the employment contract is the result of seriously culpable acts or omissions by the employer, the employer cannot invoke the non-competition clause.
If a non-compete clause is not necessary because of compelling business or service interests, or if the employee is unreasonably restricted in his freedom to work, the court can annul the non-compete clause in whole or in part. Are you about to agree to a settlement agreement? Then you can often also have a non-compete clause removed without going to court. If the clause was agreed with an employee who is a minor, it is void. The employer cannot then invoke it.
Non-competition clause in assignment agreement
Similar to an employment contract, it is possible to include a clause in an assignment contract that excludes joining a competitor. The client may have an interest in such a non-competition clause, as they provide the same services or sell business. Without a non-competition clause, the new client may have an advantage as they may adopt the old client's working methods. This may create unfair competition.
Again, the clause must be reasonable. A six-month competition clause for competitors in the same municipality is reasonable, but a ten-year clause for the whole of the Netherlands and Germany is not. In any dispute, the court will look at this on a case-by-case basis. The other rules that apply to employment contracts do not apply here.
Fictitious employment
Finally, it is always worth checking whether there is nofictitious employment instead of a contract of assignment, or false self-employment. This means that a contract of assignment has been agreed, but it is actually an employment contract. This has tax and employment law advantages for the 'client'.
To recognise fictitious employment, several aspects are important:
| Assignment agreement | Employment contract | |
|---|---|---|
| Personal employment | It is possible for someone else to do the work | Only you may carry out the work |
| Employer authority | You can decide how you do the work | The 'employer' gives instructions and directions on how to perform the work |
| Remuneration | You send an invoice and the remuneration may differ | You will receive a fixed salary and be paid on sick leave |
If there is fictitious employment, then there is an employment contract and not an assignment agreement. As a result, the same rules apply to the non-competition clause as to the employment contract. It must be an employment contract for an indefinite period, unless there is a justification that the non-competition clause is necessary because of important business or service interests.
Advice on non-competition clause?
Need advice on a post-contractual clause, such as a non-compete clause? Send your question to Arbeidsjurist Eindhoven for a free check. If we can be of added value, we will be happy to work with you to show you how we can make a difference. Please get in touch Need advice on a post-contractual clause, such as a non-compete clause? Send your question to Arbeidsjurist Eindhoven for a free check. If we can be of added value, we will be happy to work with you to show you how we can make a difference. Please contact us.
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