Many employment contracts include a non-compete clause, but it is not always valid. A number of requirements apply for a valid non-compete clause in a fixed-term employment contract. The clause must be agreed in writing with an adult employee, and must state that it is necessary because of compelling business interests. This justification must be as specific as possible. If a non-compete clause in a fixed-term contract does not state that the employer has compelling interests in agreeing it, the non-compete clause is not valid.
A standard clause for a non-compete provision in a fixed-term contract is not sufficient. The employer is required to justify why the non-compete clause is necessary because of compelling business interests in that specific case. This can differ for each employee and must be specifically justified every time. The starting point is that a non-compete clause in a fixed-term employment contract is not valid, unless the justification for its necessity is included in it. This requirement was introduced from the perspective that employees on a fixed-term contract who are bound by a non-compete clause suffer a “double disadvantage”: they are restricted from working elsewhere, while precisely because their contract is temporary, it is important that they can work elsewhere (see: Parliamentary Papers II 2013/14, 33818, 3, p. 16). The justification for the necessity of a non-compete clause can lie in very specific knowledge or business information the employee will acquire, where the employer would be disproportionately disadvantaged if the employee moved to a competitor (see: Parliamentary Papers II 2013/14, 33818, 3, p. 91).
Case law shows that the justification is not always sufficient. In a ruling of the Court of Appeal ‘s-Hertogenbosch of 7 May 2019, it was held that the wording of a non-compete clause had to be tailored to the role or the person with whom the employment contract is concluded. In that case, the employer stated it used the same non-compete wording for all commercial roles within its business. The wording was therefore not tailored to a specific role or person. According to the Court of Appeal, this did not match the case-by-case assessment and justification the legislature intended, meaning the justification requirement was not met.
In a ruling of the District Court The Hague, it was held that the justification requirement also required a substantive assessment – namely, whether the clause was necessary because of compelling business or operational interests. The fact that an employee acquired extensive, specific knowledge of commercial matters such as pricing was a circumstance that applies to any employer. The employer also benefited from the knowledge and experience the employee had gained in previous roles. The employer should therefore have clearly and concretely stated what specific knowledge – which the employee did not already have before joining – he would acquire. Since this had not been done, the heightened justification requirement was not met.
It is therefore essential to draft a sufficiently concrete and specific non-compete clause, showing exactly what business information, knowledge and skills the employee will acquire, and how this would genuinely endanger the employer. An example of a valid non-compete clause is:
“In carrying out their role, the Employee gains access to all essential business data, including data relating to the Employer’s pricing tactics and pricing, volumes and other strategic knowledge, and/or has contact with clients and gains insight into agreements to be concluded with clients, the underlying pricing tactics and pricing, volumes and other strategic knowledge. The Employee also thereby gains insight into the Employer’s working methods. This information can be classified as essential and competitively sensitive business information, which the Employer, as a compelling business interest, therefore wishes to protect. In connection with this, the Employee is prohibited, during the employment contract and for 1 year after its termination, from joining or in any way being involved with the Employer’s direct competitors, being PostNL, DHL, TNT, DPD, UPS, FedEx and Sandd.”
Here, the employer had described the non-compete clause and its business interest sufficiently concretely and made it sufficiently transparent, according to the District Court Midden-Nederland.
Do you have questions about the above? Please contact one of Sørensen Advocaten’s employment lawyers. Call: +31 (0)10-2492444
