New employment law: employer has to substantiate necessity of non-competition clause

With the introduction of the Dutch Work and Security Act on 1 July 2015, several employment law stipulations in the Civil Code were amended. One amendment concerns the non-competition clause. It is no longer possible to include a non-competition clause in employment contracts for a definite period, unless the employer states in writing, giving the reasons, which compelling business interests necessitate a noncompetition clause. In a recent ruling in a labour dispute, the subdisctrict court immediately applied this rule. Lawyer Sander Schouten addresses this case.

Noncompetition clause in temporary employment contract

The dispute before the subdistrict court was the following. The employee had been employed by the employer for a definite period as a counsellor since 2012. The employer is a private health care provider that offers care to ADHD patients. The employment contract included a (general) non-competition / non-solicitation clause (at that time this was still allowed). Based on this clause, the employee was prohibited, for 2 years after termination of the employment, to work with an organization that had identical business activities to those of the employer. After several renewals, in 2014 the employee’s contract was not renewed. The employee decided to carry on as independent counsellor and offered services to former clients of the employer.

Employee claims suspension of the clause

In proceedings the employee claimed suspension of the non-competition clause. In counterclaim proceedings the employer claimed compliance with the non-competition clause. The dispute focuses on whether the employee violated the agreed non-competition clause and if he can (still) be obliged to comply with the clause. The subdistrict court finds that the employee did not violate the clause. There are no identical business activities because the services of the employer are aimed at another target group than those of the employee and are also different in nature. In short, the employee did not violate the non-competition clause.

The employer has no interest in enforcing the non-competition clause

The court then addressed the question of how this case would be assessed if there was an overlap between the business activities of the parties. In that case, should the employee comply with the non-competition clause or are there reasons to suspend this clause? The court finds that the employer did not adequately substantiate and give plausible grounds which compelling business or service interests the employer wants to protect by recording and enforcing this non-competition clause. The employee did not acquire any important and exclusive business information from the employer that he could misuse, other than regular work experience. And although knowledge of the employer’s clientele could be considered an interest to be protected, this interest diminishes in time.

Opinion about non-competition clause has altered

The requirement that an employer substantiates and gives plausible reasons about which compelling business or service interests the employer wants to protect is a consequence of the legal amendment of 1 July 2015. This new stipulation restricts the possibility to include a non-competition clause in temporary employment contracts. The court finds that although the former law still applies in this case, the altered opinion in society on which the Work and Security Act is based and the amended legal stipulation can be taken into account when assessing the interests.

Employment contract for definite period

From 1 January 2015 (when the first stage of the Work and Security Act was introduced) it already applies to employment contracts for a definite period that a non-competition clause without an employer stating the reasons thereof in writing, is invalid. It still applies to contracts concluded before that date that an already agreed non-competition clause can be suspended by the court if it is shown that the employer has no interest in enforcement of the clause. This means that in the former law the assessment is afterwards, rather than in advance. This amendment means that a standard non-competition clause is no longer sufficient.

Employment lawyer for legal advice

Although we still have to wait how the courts will rule on the implementation of the new legal stipulation, it could be that the substantiation of compelling business interests vary for each position. We therefore advise employers to seek legal advice about the text of the non-competition clause in contracts for a definite period.