Limited use of non-competition clauses in fixed term employment under the new Dutch Work and Security Act

Limited use of non-competition clauses in fixed term employment under the new Dutch Work and Security Act

Old situation:

Employers used to be allowed to agree upon a non-competition clause in writing with any employee older than 18 years regardless of whether the employment was entered into for a definite or indefinite term. In the Netherlands, it is quite common to include a non-competition clause in an employment agreement. At all times it shall depend on further circumstances of a case whether or not such a clause is fully enforceable.

As of 1 January 2015:

Employers will be limited in their possibilities to conclude a non-competition clause with their employees on a fixed term contract. In principle, from 1 January 2015, such will no longer be allowed unless the employer has “substantial company interests” for non-competition restrictions. If so, the employer should also motivate the substantial company interests in writing at the time of concluding the non-compete restriction.

If a motivation is missing, the non-competition clause is invalid. In the event the motivation is insufficient, the non-competition clause is subject to nullification.

Substantial Company Interests

Unfortunately, the legislator has not explained the scope of the new requirement “substantial company interests”.

Based on the objective of the Work and Security Act to strengthen the position of flexible workers and the parliamentary history with respect to this item, it seems that it will be strictly interpreted. It is the intention of the legislator that “substantial business interests” should apply specifically to the position and individual employee.

The terminology “substantial company interests” does resemble that of the Working Hours (Adjustment) Act. Case law with respect to the last-mentioned act also points towards a strict interpretation of the requirement. Only future case law will show us if our assumptions in this respect are correct.

Non-competition restrictions that where agreed before 1 January 2015

These will in principle remain in force and are not subject to the new legislation.

Tips & tricks:

Should you wish to include a non-competition clause in an employment agreement for a definite period it is necessary to assess whether your company has interests that could qualify as “substantial company interests”. Further, should this be the case, you should confirm your reasons and set out such reasons in writing in the employment agreement itself or for example as an enclosure to the employment agreement. It is important to realize the reasons should be specific. They should not only apply to the company but also specifically to the individual position for which you include it in the contract. In addition, it is advisable to also – next to a non-competition clause – agree upon a non-solicitation clause (for safety’s sake also take into account the new requirement which applies to non-competition clauses).

At this time – and depending on the specific circumstances of the position that it relates to – we would think the following aspects might be relevant to include where applicable:

• Your products/services : innovative products/services, unique nature, etc.
• The market your company operates in : highly depending on R&D, highly competitive? If so, how? Small market with only a few players? Large market with many players that are heavily depending on new developments or other highly confidential items? Technology driven? Quick turnaround of products and/or technology? Etc.
• The position your company : some might have to do with the market as described above but there might be specific circumstances (about to develop a new business strategy/product, enter a new market ? Etc.).
• The position of the employee : his/her job title and tasks, his/her access to confidential information and of what nature specifically? Access to pricing, business strategy, customer information, product information, product development, contact with customers ? Etc.
• Nature of the specific/crucial/unique/ knowledge and know how that the employee would obtain during the employment on the above in his/her position.
• Specific interests or vital interest /dependencies on the items as stated in the above.
• Specific interests to prevent knowledge to be shared or used on the job at a competitor.
• Confirmation of the fact that both employer and employee acknowledge the fact that substantial company interests exist and the non-competition restriction as included is necessary to protect the interests of the employer.

It might be advisable for certain cases to immediately conclude an indefinite employment agreement (for example in the event of an important sales position), if you wish to avoid any discussion in this respect.

If you have any questions regarding the above or wish to receive more information, please contact Martine Hoogendoorn at m.hoogendoorn@denklaw.nl or 0031-(0)88 73 04 620.