District Court Midden-Nederland, 23 October 2024, ECLI:NL:RBMNE:2024:6411
Non-compete clause in fixed-term contract invalid for failing to meet the justification requirement
On 23 October, the District Court Midden-Nederland ruled on the validity of a non-compete, non-solicitation and secondary-activities clause. The employer and employee had agreed to several such clauses in the employment contract, which turned out not to meet the statutory requirements.
Facts
The employee joined the employer on 1 November 2022 for a fixed term of seven months. On 23 March 2023, the contract was extended until 1 December 2023, after which it ended by operation of law. Article 20.2 of the employment contract contained a non-compete clause, and in article 20.5 the employer set out its compelling business interests. Those interests amounted to protecting confidential business information such as client lists, margins, working methods and know-how. Article 20.1 of the contract contained a secondary-activities clause. According to the employer, the employee had breached the non-compete, non-solicitation and secondary-activities clauses, and it therefore claimed payment of a €10,000 penalty.
Ruling
The subdistrict court ruled as follows. The starting point is that a non-compete clause in a fixed-term contract is not valid, because it puts the employee at a “double disadvantage”. An exception applies if the written justification accompanying the clause shows that it is necessary because of compelling business or operational interests (Section 7:653(2) of the Dutch Civil Code). Those interests may not be stated in general terms. There must be a demonstrable link to the specific work performed or the specific role held by the employee, such that the employer would be disproportionately disadvantaged if the employee moved to a competitor. The non-compete clause was invalid because it failed to meet this justification requirement: the interests listed in article 20.5 were generic and could equally apply to other commercial businesses. The wording was not tailored to the employee and his role at all – there was no bespoke non-compete clause. Nor did the employer’s explanation at the hearing establish the necessity of the clause. On the contrary, the employer itself stated that the employee was not familiar with all of its clients and failed to sufficiently specify exactly what knowledge he had of its working methods. In these circumstances, there was no genuine risk of damage to the employer’s commercial position.
Since a non-solicitation clause is also assumed to fall under Section 7:653 of the Dutch Civil Code, that clause likewise failed to meet the justification requirement.
In addition, the secondary-activities clause in article 20.1 was void for lack of an objective reason. The court understood the employer’s position to be that restricting the employee’s freedom to take on secondary activities was objectively justified by the need to protect confidential business information, safeguard the integrity of public services, avoid conflicts of interest, and prevent competition from its own staff during employment. The court did not accept this. As already found, the employee’s knowledge of the employer’s clients and working methods was limited, and the employer had not sufficiently established that he had received much confidential business information. What the employer meant by “the integrity of public services” was not concretely explained, so it could not be established that the clause was justified on that basis. Avoiding conflicts of interest is, in general, a sound starting point for an objective reason. In this case, however, the employer linked the conflict of interest to a football tournament on 24 June 2023, and the court saw no conflict of interest in that situation. It saw no connection between the employee’s role and the activities carried out during the tournament.
Finally, the employer’s argument that the clause was justified because it prevented its own staff from competing during employment was also rejected as an objective reason: without a clear explanation from the employer, it could not be established what exactly was meant by this.
The parties had agreed a penalty clause in article 21 of the contract for breach of article 20. However, since the non-compete and non-solicitation clauses were found invalid and the secondary-activities clause void, the employer could not validly invoke article 21 or attach any penalty to it.
Conclusion
The subdistrict court concluded that the agreed clauses did not meet the statutory requirements – in particular the justification requirement – so that they could not be relied upon. The employee therefore did not owe the employer any penalty.
This ruling shows that a non-compete clause in a fixed-term contract is reviewed strictly. Not only must the written justification requirement be met, the substance of that justification is also tested on its merits. At a minimum, a non-compete clause must specify exactly which business information, knowledge and experience the employee will acquire, and how the employee could genuinely jeopardise the employer’s commercial position. The same applies to a non-solicitation clause.
This ruling also teaches us that a secondary-activities clause can only be justified on the basis of demonstrable objective reasons.
Click here for the full ruling (in Dutch).
