Netherlands Update: Non-Competition Clause, New Legislation in the Making

After the provisions on pensions, the provision on the non-competition clause is hardly read by perhaps most employees when entering into a new employment contract. Wrongly, a non-competition clause linked to a penalty clause can seriously hinder an employee in a possible switch to another employer.

In itself, there is nothing wrong with a non-compete clause. Employees can gain knowledge from an employer that, if the employee leaves for the competitor with that knowledge, can cause serious damage to the previous employer.

In practice, however, non-competition clauses are often not given much thought, not even by the employer, and that they are included in the employment contract as standard. Nowadays, invoking a non-competition clause often seems to be motivated by the tight labour market. In this way, employees are improperly discouraged from working elsewhere. That’s not what the non-competition clause is for.

Fixed-term agreement

Since 1 January 2015, it has been prohibited to automatically include a non-competition clause in a fixed-term employment contract. In the case of such an employment contract, the employer will have to specifically justify that a non-competition clause is necessary due to compelling business or service interests.

New legislation

The current outgoing minister Van Gennip is in the process of tightening the requirements for a non-competition clause:

• there will be a maximum duration for which the non-competition clause may apply;
• a geographical scope must be included, specified and justified;
• As with a fixed-term employment contract, the need for a non-competition clause will also have to be justified in the case of an employment contract for an indefinite period;
• Anyone who wants to hold an employee to a non-competition clause will have to pay a percentage of the last salary earned as compensation.

One and a half times modal

In addition to these proposed changes, a motion was recently passed in the House of Representatives for an additional condition to the non-competition clause:

• a non-competition clause is not permitted if the employee earns less than one and a half times the average income; salary, holiday allowances and fixed benefits.

Internet consultation

The bill will soon be submitted for internet consultation. During this period, it is possible for citizens, companies and institutions to provide input. After that, the bill may be amended and still has to go through the Senate. That may seem a long way off, but it is important for employers to keep a close eye on the impending changes and to adjust employment contracts accordingly in a timely manner.

By Hocker, Netherlands, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact netherlandslabor@transatlanticlaw.com

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