Does a significant improvement in position with a potential new employer lead to annulment/suspension of the non-compete clause?

The non-compete clause in employment contracts for an indefinite duration is generally well enforceable, if this clause has been validly agreed (i.e. in writing and with an employee who has reached the age of majority) and has not lost its effect over time as a result of major changes in the employment relationship (whereby the non-compete clause has become significantly more onerous for the employee). This is different for fixed-term employment contracts: in principle, a non-compete clause is not allowed therein, unless a written justification by the employer is included showing that the clause is necessary because of important business or service interests. This justification is subject to strict requirements, making the enforceability of a non-compete clause in a fixed-term employment contract difficult in practice.

However, a valid non-compete clause can be annulled (or suspended) in whole or in part under certain conditions. Any improvement in the employee’s position with the new employer may be a factor in this. Usually in the employee’s favour, but not necessarily…

(Partial) annulment/suspension of non-compete clause
Annulment or suspension can be granted by the court if the employee is unfairly disadvantaged in relation to the employer’s interest to be protected. It regularly happens that in the absence of interest on the part of the employer, the duration or geographical scope is limited. Generally, a duration of one year is considered reasonable, unless there are special circumstances that may justify a longer duration.

The employer’s interest in compliance with the clause may lie, for example, in the impairment of know-how, the employer’s knowledge of trade secrets or the possible loss of customers. If the employer’s interest relates only to binding the employee to itself, that interest is not honoured and the employer risks having the clause (partially) annulled/suspended by the court. Factors considered in the balancing of interests include, among others, what the employer has invested in the employee’s training and skills, what kind of employment contract is involved and how long the employee has been employed, the employee’s salary and his/her chances in the labour market, whether the employee has been compensated for enforcing the non-compete clause and how the employment contract ended, etc.

Position improvement of employee
Employees regularly argue that they have the prospect of a significant position improvement (and corresponding salary increase) with the new employer and are therefore unfairly disadvantaged by the enforcement of the non-compete clause. The court usually takes such a circumstance into account in the balance of interest in the employee’s favour. However, a ruling by the Subdistrict Court of Dordrecht of 20 August 2024 shows that such a circumstance can also contribute to the assumption of a weighty interest on the part of the employer and that the non-compete clause can be enforced (among others) for that reason.

This case involves an employee employed as a Junior Trader by an employer that trades dairy products globally. The employee terminated his employment contract by 1 June 2024 to join a competitor in the position of International Sales Manager from 1 September 2024. The now former employer informed that this transfer constituted a breach of the non-compete clause, following which employee claimed suspension or limitation of the non-compete clause and penalty clause.

The court rejected this request (i.e. the non-compete clause was upheld). Indeed, it was established that both companies trade the same products in the same industries (food and feed industry). The former employer had an interest in ensuring that its strategies relating to the dairy trade would not reach the new employer. The former employer also managed to make it sufficiently plausible that the former employee had competitively sensitive information, such as customer information, technical product knowledge of all suppliers and customers, purchasing, sales and product strategies, etc. Although the former employee’s new position would differ in content from his position with the former employer, this does not make it so that the competition-sensitive information that the ex-employee presumably possessed would not reach the new employer. In this regard, the subdistrict court considered that precisely because the former employee will receive a substantial salary increase with the new employer, the ex-employer rightly feared that the new employer would want to make use of the former employee’s knowledge of the former employer’s working methods and that this could affect its business flow. Therefore, the former employer had a compelling interest in enforcing the non-competition clause.

The court then tested the employee’s interests, but these did not carry sufficient weight. The court considered (again) that there had indeed been a significant improvement in the employee’s position, as he could earn 40% more with the new employer. However, this also raised questions about the new employer’s motives for offering such a high salary. The court therefore ruled that the non-compete clause remained in full force.

Thus, case law thus shows that a position improvement does not only have to be an argument in favour of employees. In some situations, such a position improvement can actually (further) substantiate that there is a risk of impairment of the business flow and that the non-compete clause should therefore be able to be enforced in full.

Bill on modernisation of non-compete clauses
There are plans to further restrict non-compete clauses, also for indefinite contracts (see our previous article on this topic). However, this bill is still in the preparatory stage, still needs to be submitted to the Council of State (Raad van State) for advice and adopted by the House of Representatives and Senate to enter into force. It is still uncertain whether this bill will be passed (also considering the new government in the Netherlands since 2 July 2024) and, if so, in what form and from when it will enter into force. As soon as more is known about this, we will provide an update.

If you want to know how to best protect your know-how, do not hesitate to contact us. We will be happy to assist with designing a non-compete clause and, if necessary, its enforcement.