This is how the non-competition clause in a Dutch employment contract works!

Recently, AMS Advocaten brought an interim injunction on behalf of a Dutch employer in which they sought a prohibition on the breach of the non-competition clause by two former employees. One of them was employed for an indefinite period, the other for a fixed term. The Dutch court awarded the injunction in spite of the strict requirements in Dutch law for a non-competition clause in temporary contracts. Employment law specialist Lennard Noordzij explains.

Non-competition clause in Dutch open-ended contracts

Entering into a legally valid non-competition contract with an employee working on the basis of a Dutch open-ended employment contract is subject to two formal requirements: age of majority and the requirement of a written record. The age requirement in the Netherlands means that the employee must be at least 18 years old when entering into a non-competition contract (while for the rest of Dutch employment law, a 16-year old is equated with an adult). The requirement of written records in the Netherlands means that the non-competition clause must be agreed in person, in writing, with the employee. According to case law, this requirement is satisfied in the following situations:

• A document signed by the employee containing a non-competition clause;
• A statement of agreement, signed by the employee, accepting the general terms and conditions of employment attached to that statement;
• A statement of agreement, signed by the employee, accepting the general terms and conditions of employment that are not attached, if the employee expressly states that he accepts the non-competition clause included in the general terms and conditions of employment.

Non-competition clause in Dutch fixed-term contracts

More stringent conditions apply to a legally valid non-competition clause in a Dutch fixed-term employment contract (regardless of duration). The starting point is that a non-competition clause is not legally valid unless the employer can demonstrate the need for such a clause. This contract is subject to three formal requirements: age of majority, a written employment contract, and the requirement to state reasons in writing. The age of majority requirement is the same as for an open-ended employment contract but the requirement for a written record is stricter. Other than in a Dutch open-ended contract, a non-competition clause must be included in the fixed-term employment contract itself. Therefore, it is not possible to refer to another document.

Requirement to state reasons in writing

Finally, the requirement to state reasons in writing. In the case of the non-competition clause in a temporary contract, an employer must include a statement of reasons in writing demonstrating that such a clause is necessary on account of substantial business interests. The Dutch legislator stipulated in this respect that a Dutch employer must state on a case-by-case basis the substantial business or service interests requiring a non-competition clause. This requires a specific assessment and statement of reasons on a case-by-case basis.

About the statement of reasons for the Dutch non-competition clause

Such a statement of reasons may be based on very specific knowledge or business information that the employee will acquire during his employment as the employer would be disproportionately disadvantaged if the employee were to transfer to a competitor. It must then be assessed whether the non-competition clause is essential, despite the presence of substantial business interests, and whether there are other ways of achieving the same result.

Non-competition clause for fixed and open-ended contracts

In the above preliminary relief proceedings, the following non-competition clause was included in the Dutch employment contract of both employees (both in the fixed-term and the open-ended contract):
“In the performance of his duties, the employee will acquire knowledge of a coherent set of financial, organisational, and (marketing) technical information, which distinguishes the employer from its competitors and determines its market position to a significant degree. Moreover, in view of his position, the employee will have full insight into the location where the employer operates as well as the financial positions of the employer and its clients. The employer has a strong interest in ensuring that its competitors do not use this knowledge. Therefore, the non-competition clause contained in this section is essential because of substantial business interests as referred to in Section 653 (2) of the Dutch Civil Code.”

Two employees set up limited company during employment

In May 2017, during their employment, the two employees registered a domain name and set up a limited company in the Netherlands with an e-mail address similar to the e-mail address of the newly created company. On 31 May 2017, they gave notice of termination of their employment contract by 1 July 2017. Eventually, and this appeared after they had given notice, the employees had already had a ‘corporate opportunity’ during their employment, which they did not share with their employer but wished to preserve for their own company.

Court assessed validity of the Dutch non-competition clause

The court ruled that the employee with the open-ended contract was in principle bound by his non-competition clause. With regard to the temporary contract, the court ruled that – in line with this Section – the principle is that a non-competition clause is invalid but that the reasoning stated above provides sufficient justification for the substantial business interests involved and as to why the clause concerned is required. The non-competition clause is sufficiently specific about the knowledge that the employee will acquire. The fact that the clause did not contain a job title and was identical to the clause of the employee with the open-ended contract does not affect this.

Dutch court prohibits infringement of non-competition clause

The Dutch court ruled that the non-competition clauses had been validly agreed. After weighing the employer’s and the employees’ interests, the court in preliminary relief proceedings considered that the employees had not been unfairly prejudiced in relation to the employer’s interests to be protected by maintaining their non-competition clause. The court prohibited both employees from violating their non-competition clause.

Employment Law Lawyer: non-competition clause is essential

This judgement made it clear that it is essential for employers to also include a non-competition clause (individually justified) in Dutch fixed-term employment contracts. For employees, it is important not to underestimate the value of a non-competition clause in their temporary contract.