The competition clause on the rocks

Are you ready or would you rather have a free check now?

The non-compete clause was always such a useful clause to prevent an employee from joining a competitor after leaving, or at least to be able to negotiate about it. But, the rules are about to change considerably. And that could have major consequences for the validity of your employment contracts. So it is high time to take a closer look at this issue.

What's going on?
The legislator believes that the non-compete clause is used too often and too easily, even in jobs where it is hardly needed. This is no longer in keeping with the current times. Employees are thus too much restricted in their constitutional right to free choice of employment. Over the past 10 years, therefore, there has been a clear trend where judges in many cases annul or limit the duration or radius of a non-compete clause if the employer cannot properly substantiate or demonstrate the interest in maintaining it. As an employer, you are supposed to captivate your employees in a figurative sense, not in a literal sense.

The bill ‘Modernisation of non-competition clauses’ aims to bring Section 7:653 of the Civil Code in line with this trend. As a result, the use of non-competition clauses will be significantly curtailed. This proposal is expected to go to the Lower House during 2025 and possibly enter into force in 2026 or 2027. The exact content is not yet clear, but that much will change is certain.

Free check
Smart entrepreneurs are looking ahead now. That is why Tripolis offers a free* check until the end of 2025 to see if your employment contracts are fit for the future with regard to non-competition clauses. Send an e-mail with a sample of the non-compete clause in your employment contract(s) to ruud.gijsen@tripolissupport.nl if you would like to take advantage of the check.

Changes due to the law ‘Modernisation of non-competition clause ’
Under current legislation, you may include a non-competition clause in permanent contracts fairly easily. In temporary contracts, you already have to provide good justification as to why this is necessary. Under the new rules, this becomes even stricter - and on top of that, there is a serious financial obligation involved.

The main changes are in brief:

• The maximum duration of the non-competition clause becomes 12 months after the end of the employment contract. Agreed a longer non-competition clause? Then the entire non-competition clause is null and void.
• The employer must motivate the weighty business or service interest, duration and geographical scope in writing in all employment contracts. This interest must be present when the contract is entered into but also at the time the employer invokes it.
• The employer must notify in writing no later than one month before the end of the employment contract whether it wishes to maintain (invoke) the clause. In case of summary dismissal, at the latest within 2 weeks afterwards. If the employer does not invoke the non-competition clause in time or in writing, the clause does not apply.
• If the employer invokes the non-competition clause, it is obliged to pay compensation to the employee of 50% of the last-earned monthly salary for each month the clause is in force. This compensation must be paid in full and prior to the period of the non-competition clause otherwise the employer cannot invoke it and still owes the compensation in full.
• Existing non-competition clauses remain valid in principle. However, after the new law comes into force, the new rules will apply.

Criticism?
Yes, there certainly is. The internet consultation and input from employers' associations and from the literature lead to numerous questions and adjustment requests. For instance, regarding salary limits below which the law does not apply, exception for the compensation obligation of small or medium-sized employers. The question whether the same rules should apply to relation clauses and anti-solicitation clauses is also still unclear.

Conclusion
The tide has turned. The Law on Modernisation of Non-competition Agreements will impose hefty restrictions on the possibilities of including a non-compete clause, demand high requirements for its justification and impose serious compensation obligations on the employer. As a result, the question will be what is most important for you as an employer. Protecting your business flow and maintaining an edge in the market, through a non-competition clause, even if it costs a lot of money? Or will you ‘captivate’ your employees to stay in another way? We are happy to think with you about that too.

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*The check is free, the advice or adjustments are not.