There is considerable tightness in the labour market currently. In the second quarter of 2021, there were 106 open vacancies for every 100 unemployed in the Netherlands according to the Central Bureau for Statistics [1]. So, more jobs than people. Thinking of job mobility, I noticed a report from the Minister of Social Affairs and Employment to our parliament of 25 June of this year[2], concerning the non-competition clauses in employment relations.
More about the report below, first let’s take a look at the legal requirements for a non-compete in a Dutch law employment agreement:
Article 7:653 of the Dutch Civil Code says that a clause between the employer and the employee restricting the latter’s power to work in a certain way after the end of the contract is valid only if the employment contract has been entered into for an indefinite period and provided that the restriction has been agreed to in writing with an employee of an adult age.
A non-compete clause in a fixed term employment can only be valid if the motivation for such clause is included in the contract and shows that the clause is necessary because of important business or service interests.
The law provides for compensation if a non-compete clause significantly impedes the employee’s ability to work other than in the employer’s employ. It says that the court may always determine that the employer must pay compensation to the employee for the duration of the restriction. The judge shall determine the amount of this compensation in fairness in view of the circumstances of the case. The compensation is not payable if the termination or non-continuation of the employment contract is the result of serious culpable acts or omissions by the employee.
The report presented by the Minister shows the results of the investigation into the operation of the non-competition clause.
In summary, the report provides the following picture about the non-competition clause:
- One in three employers use a non-competition clause, almost always (90%) as a standard clause in the contract, which means that an estimated 3.1 million employees are bound by the clause. These clauses are rarely invoked, but do have a deterrent effect. In addition, there are not always grounds for a non-competition clause because the employee does not have access to business relations or sensitive information.
- Although it concerns the improper use of the non-competition clause, one in three employers also use a clause to prevent the outflow of staff.
- The use of the non-competition clause has an impact on the labour mobility of employees. How this works out depends very much on the employer.
- Employees have a different perception of the non-competition clause than employers. The purpose for which an employer includes a non-competition clause is not always clear to the employee.
- There are fewer and fewer court cases concerning non-competition clauses. Many disputes are settled out of court. The majority of legal proceedings concerning a non-competition clause result in the clause being suspended. There is a great deal of legal uncertainty about the non-competition clause; it is difficult to estimate the outcome of a court case.
- Employers see the non-competition clause as an important instrument for the protection of relations and information. They do not easily see an alternative to this clause. Those who do see an alternative have the greatest support for limiting the applicability of the non-competition clause to open-ended contracts. To a lesser extent, there is also support for a mandatory maximum duration or compensation arrangement.
- In most Member States of the European Union, the competition clause has more safeguards than in the Netherlands. Elsewhere, a non-competition clause is often linked to a compensation obligation and/or the duration is limited.
In conclusion, the report gives rise to new policy options. So we may expect some change in due course of the clause that was introduced in 1907 (though not in its current form).
In our view, employers may well have a strong interest in entering into a non-competition clause in order to protect their business. At the same time, the labour market has an interest in not restricting employees too much in their mobility.
We opt for a non-competition clause where necessary, with specific coverage and, if possible, not stated too generally. When entering into such a clause in a fixed-term employment contract, it is all about customisation. Naturally, we will be happy to advise you.
For more information, contact Reinier Wolters, r.wolters@valegis.com.
[1] https://www.cbs.nl/nl-nl/visualisaties/dashboard-arbeidsmarkt/spanning-op-de-arbeidsmarkt [2] https://www.rijksoverheid.nl/documenten/rapporten/2021/06/25/eindrapport-onderzoek-werking-van-het-concurrentiebeding-panteia
