In a parliamentary letter on 2 June last, the Dutch Cabinet (part of the government) announced plans to amend the rules regarding the non-competition clause.
What does a non-competition clause entail?
Many employers agree upon a non-competition clause with employees in the employment contract. Such a non-competition clause prohibits an employee from doing the same or similar work for another company or e.g. as a self-employed person. A client clause (or non-solicitation clause), which prohibits approaching customers/relations, is also considered a non-competition clause.
Reason for proposed changes
According to research, writes the Minister of Social Affairs and Employment, employers frequently use the non-competition clause. Even in situations where it is questionable whether it is really necessary to agree a non-competition clause. This can lead to unjustified restrictions on employees. Furthermore, there is currently a tight labour market in the Netherlands. Through the frequent use of the non-competition clause, employers try to bind scarce/sought-after employees to themselves – while the non-competition clause is not intended for this purpose. At the same time, this restricts employees from changing jobs, resulting in the labour market not functioning optimally (e.g. because employees are not (entirely) happy with their jobs.
By planning to amend the rules regarding the non-competition clause, the government hopes to limit unnecessary and incorrect use of the clause.
The announced changes are as follows:
- The non-competition clause will be limited in duration (this exact duration is not specified in the parliamentary letter);
- A specified and justified geographical scope must be agreed on a mandatory basis;
- As in a fixed-term employment contract, employers will also have to justify the weighty business interest in indefinite-term contracts. In short, this is the justification why it is necessary for the employer to agree a non-competition clause. In practice, we see that this justification has to be (very) extensive.
- When the clause is invoked, the employer will have to pay a set statutory compensation to the employee. The idea is that this will be a certain percentage of the employee’s last earned salary.
The bill is currently being prepared and the Minister of SZW expects to offer it for internet consultation by the end of this calendar year. We will of course keep you informed on any developments.
Want to know more or have questions about the non-competition clause? If so, please contact us at firstname.lastname@example.org. We will be happy to help you!