A contractual non-compete clause – including a non-solicitation clause – is regulated by Dutch law. Based on the contractual arrangement, the non-compete clause can in principle prevent the (former) employee from entering into an employment agreement with a competitor and/or from starting up his own competing enterprise. An employment agreement often includes a clause providing that a penalty must be paid by the employee on breach of the non-competition clause. Non-compete clauses need to be agreed in writing, with an employee who is of age.
Fixed- term contracts – be careful!
Since 1 January 2015 a distinction has to be made between non-compete clauses in employments agreements for an indefinite and a fixed period of time. If an employment agreement is entered into for an indefinite period of time, the non-compete clause will in principle be valid (if the formal requirements mentioned above are met). A different rule applies to non-compete clauses in employment agreements for a fixed period of time; in that case, in principle, it is not possible to include a non-compete clause, unless the employer is able to demonstrate, in writing, that a non-compete clause is necessary for substantial business reasons. The substantial business reasons must be included in the fixed-term employment agreement.
Complete or partial annulment
Even if a valid non-compete clause is agreed, a court can annul a non-compete clause, either completely or partially, when an employee is unfairly prejudiced by the clause in relation to the interest which the employer intends to protect. In the case of a partial annulment, the court can for example, reduce the scope of the clause, in a geographical way or in duration.
Additionally, if, because of the interests of the employer, the non-compete clause remains completely or partially intact, but the employee is seriously restricted from accepting employment elsewhere, the court may decide to award compensation to the employee.
A clause that is often paired with the non-compete clause is the confidentiality clause. However, the confidentiality clause is not explicitly encoded in the Dutch Civil law and is governed by general civil law. A confidentiality clause can be included in the employment agreement – without further formal requirements – but even if no confidentiality clause is drafted, a (former) employee is also expected to maintain confidentiality regarding confidential information. It is possible to include a clause requiring a penalty to be paid by the employee in the event of breach of the confidentiality clause.
In summary, it is possible to agree on a non-compete clause if the formal requirements are met. However, for an employment agreement for a fixed period of time, the employer must demonstrate that there are substantial business reasons that make the clause necessary. In addition, an employee has various means available to limit the effects of a non-compete clause under the Dutch Civil Code.