Plans to tighten the non-competition clause have been developed into a bill. The draft bill on modernisation of the non-competition clause was announced on 4 March 2024 and is up for internet consultation until 15 April 2024. Thereafter, the bill will be sent to the House of Representatives, either in amended form or not.
The legal requirements for using a non-competition clause are currently limited. The only conditions are that the non-competition clause must have been agreed in writing in an employment contract for an indefinite period of time with an adult employee. In fixed-term employment contracts, a written justification is required showing that the non-competition clause is necessary due to compelling business or service interests. Whereas the current law takes a positive approach (the non-competition clause is valid unless), the new regulation takes a negative approach (the non-competition clause is null and void unless). The idea behind the provisions of the draft bill is to reduce the number of non-competition clauses and restore the balance between employer and employee, as well as legal certainty. While at the same time allowing employers who really need the non-competition clause to continue using it.
What will change with the bill?
- A non-competition clause with a duration longer than 12 months becomes null and void;
- The geographical scope must be made explicit;
- All clauses must be motivated, including clauses in employment contracts for an indefinite period of time;
- The justification must show the weighty interests involved;
- A mandatory compensation is proposed in case employers invoke the clause, namely 50% of the monthly salary;
- There will be provisions regulating when an employer can and must invoke the non-competition clause. Upon termination of the employment contract, an employer will have to indicate in writing that he is invoking the non-competition clause and for what period. The period for this will depend on how the employment contract is terminated; and
- The possibility of making mutual agreements (e.g. in a settlement agreement on termination of employment) remains, but this freedom of contract is limited by the bill. For instance, parties may agree on the compensation to be paid (higher or lower), but cannot deviate from the maximum duration, the geographical scope and the obligation to state reasons.
Does the new regulation also apply to the non-solicitation clause?
From the MoT to the draft bill, it is explicitly stated that the article of law also covers the non-solicitation clause. Such a clause prevents former employees from working for or with relations of the employer. According to the draft bill, the non-disclosure clause does not fall within the scope of Section 7:653 of the Dutch Civil Code.
What impact does the new regulation have on already existing non-competition clauses?
For existing non-competition clauses, the current rules will continue to apply. A non-competition clause that was agreed before the Act entered into force and lasts for more than one year and/or where no geographical scope is mentioned and/or is included in an employment contract for an indefinite period of time without justification as to why the non-competition clause is necessary, does not have to be opened up and adjusted. However, the provision on making a written invocation of the non-competition clause and the compensation to be paid do apply after the bill comes into force. Under the new rules, should an employer wish to hold an employee to an old non-competition clause, the employer will have to communicate this to the employee and pay compensation to the employee.
Finally, the cabinet is still exploring whether non-competition clauses can be banned up to a minimum salary limit (1.5 modal which amounts – depending on fixed benefits – to around EUR 65,000 for full-time employment). The government has indicated it will come up with a response before the summer.
For more information and further questions, please contact Annelot Peters.
