Common mistakes and challenges with the use of non-competition clauses in an employment agreement under Dutch law

For multinational companies that start their business in the Netherlands, it can be tempting to use the international template of an employment agreement to hire employees in the Netherlands. This is generally not recommended, due to the particularities of the Dutch employment system with its specific laws and regulations.

Moreover, the use of a tailor-made employment agreement is certainly recommended when a company wants to use certain specific, restrictive clauses for their employees in the Netherlands. Clauses such as a trial period, a non-competition- or clients clause, a confidentiality clause, an intellectual property clause, etc. require compliance with a specific restrictive rules under Dutch employment law. Pellicaan Advocaten will be glad to assist you with drafting such specific clauses and agreements.

In this article I aim to provide the (HR-department of) companies starting hiring in the Netherlands, with a short summary of the most relevant particularities in Dutch employment law concerning the use of a non-competition clause. In this article, I will discuss both the non-competition clause and clients clause as one, since in Dutch law there is a general restriction on the use of clauses “which limit an employee to work in a certain way after the end of the employment contract” (this also includes the clients  or business relations clause).

Rules

When using restrictive clauses such as a non-competition clause, the (HR-department of) a company, should be aware of the following rules as stipulated in the statutory law and applicable case law:

1. In Dutch employment law, a non-competition clause is only valid when agreed upon in writing, with an adult and in an indefinite term contract (, unless….);
   
   the stipulation that the non-competition should be made in writing, means that the a signature is required either on the employment contract containing the non-competition clause, or on a contract referring to an attached non-competition clause, or on a contract explicitly referring to a non-competition clause in case of a not attached non-competition clause. Considering the restrictive nature of the clause it has to be clear that the employee is (or could have been) aware of what he signs for.
2. The non-competition clause is only valid in an indefinite term employment contract, unless …
   
   it is substantiated in (or with) a definite term employment contract, that there are serious interest(s) of the company that necessitate the use of a non-competition clause in a definite term contract. If a non-competition clause is used in a definite term contract the employee can request the courts to establish the clause is void when there is no substantiation at all, and can challenge the necessity for the use of the clause in case there is a substantiation.
   
   
3. Ambiguities and inconsistencies in the text of the non-competition clause are generally for the risk and account of the employer (the so called “contra proferentem” rule):
   
   The contra proferentem rule, as has been established in case law, entails that inconsistencies or ambiguities will be interpreted to the disadvantage of the author of the provision (in this case the employer). As a consequence it is of paramount importance to ensure that the text of a non-competition clause is clear and consistent with the intention of parties.
   
   
4. If the position of an employee changes, a non-competition clause can sometimes no longer be invoked by employer. Therefore it is recommended to take into consideration to renew the text and to again agree on the applicability of a non-competition clause when there is a thorough change in position of the employee;
   
   If the position of the employee changes significantly (/fundamentally) and this causes the non-competition clause to be a considerably higher burden for the employee (“aanmerkelijk zwaarder wegen”), the non competition clause can under certain circumstances no longer be invoked.
   
   
5. Unlike the legal systems in some of our surrounding countries, there is no standard compensation due for invoking the non-competition clause and it generally is allowed to agree upon a penalty on the breach of the clause;
   
   An employee may request a fair financial compensation at court when he would be hindered to a significant degree to work elsewhere, as a result of (the decision of the employer to invoke) the non competition clause. However such requests are not often rewarded since the hindrance should be of a significant degree. Moreover such compensation will only be awarded for the duration of the constraint and when establishing a fair amount courts often take into account what the employer can still earn elsewhere;
   
   
6. Pacta sunt servanda, or in other words: one is bound by what is agreed to. If a non competition clause has been agreed upon (in writing, with an adult) the starting point is that the employee is bound by its restrictions and that in case of a breach the employee incurs the penalty which has been agreed to;
   
   * Unless a deviation has been agreed upon or a court has ordered a non-competition clause to be invalid;
   * An agreed upon penalty for the employee can on request be mitigated by the courts in case incurring such penalty is deemed unacceptable by the standards of reasonableness and fairness, however this is generally a high threshold.

More information

Pellicaan lawyers gives advice, reviews and litigates frequently concerning (inter alia) non-competition clauses. For an advice or an exploratory meeting, the author of this article can be contacted on:  Floris.Asscher@pellicaan.nl or (0031) 88 627 22 20.