We are currently receiving many questions about non-compete clauses.
The Supreme Court recently ruled that a tight labour market is not relevant to the balancing-of-interests test. A non-compete clause is not meant to tie employees to a business by making it impossible for them to work elsewhere.
For a non-compete clause in a permanent contract with an adult employee, the starting point is “a contract is a contract”. A non-compete clause may only be included in a fixed-term contract if the employer states in it why it has compelling business interests for doing so.
In a tight labour market, an employer is understandably reluctant to lose a good employee – especially if that employee then goes to work for a competitor.
What can you do if an employee bound by a non-compete clause threatens to move to a competitor?
- Summon the employee to comply with the non-compete clause and warn them that penalties are owed if they fail to do so (such penalties must be contractually agreed);
- Write to the competitor to point out that it is committing a tortious act by letting the employee work for it, since the employee is bound by a non-compete clause;
- Agree different terms with the employee, for example shortening the term of the non-compete clause to six months or converting it into a non-solicitation clause;
- Claim compliance with the non-compete clause and payment of the agreed penalties in summary injunction proceedings.
In proceedings, a judge rules based on a balancing of interests. This balance falls in the employer’s favour if the employee is not unfairly disadvantaged by the non-compete clause. For the employee, the relevant interest is the right to freely choose one’s work; for the employer, the interest concerns protecting its business.
Circumstances that can be relevant to this balancing test include:
- whether the employee has knowledge of trade secrets that could give their new employer a competitive advantage;
- whether the employee worked closely with the employer’s clients (allowing them to bring those clients along to the competitor) – an employee in an important role and/or with significant client contact will more readily be held to the clause;
- fears of harm arising from the employee’s knowledge of trade secrets and personal contact with clients or other business relations;
- the length of employment;
- whether the employment contract ended on the employee’s or the employer’s initiative;
- whether the employee is joining a direct competitor (overlapping work);
- whether the employee still had career prospects with the employer;
- whether the employee can take up a better position with the competitor (higher role, higher salary and/or better career prospects);
- whether the employer invested in the employee’s training and expertise;
- the risk the employee runs of losing their new job, or facing serious difficulty finding a new one, if the non-compete clause is enforced;
- how tied the employee is to the sector in which the employer operates;
- whether the non-compete clause makes it impossible for the employee to support themselves;
- whether the employee is also bound by a non-solicitation and confidentiality clause that adequately protects the employer’s trade secrets.
If a court rules that the employee must comply with the non-compete clause, this does not, of course, mean the employee will stay with the employer – they may still look for a job in a different sector. Simply agreeing a non-compete clause is therefore not enough to retain staff. A pleasant working atmosphere, good terms of employment (such as flexible working), and rewarding good employees (financially or otherwise) are essential for staff retention. The non-compete clause is no miracle cure for keeping good people.
For more information on the Supreme Court ruling, click here (in Dutch).
Questions about the above?
Please contact one of Sørensen Advocaten’s employment lawyers. Call: +31 (0)10-2492444
