The non-competition clause

A non-competition clause is a special clause, usually included in a labour agreement, which prohibits the employee to perform certain competing activities after the determination of that labour agreement. This entails that an employee, bound to such a provision, may not start a competing company and may not work for a competing company.

Free choice of employment vs. freedom of contract
Although the constitution states that every employee has free choice of employment, the non-competition clause can limit this constitutional right. This limitation may only be used under certain conditions: the legal use of such a non-competition clause is limited by a number of strict requirements.

Requirements of validity

First of all, the employee must be an adult. Also, the clause must be agreed upon in writing, an oral agreement is not enough. It is sufficient to enclose such a clause in for instance a supplementary letter together with the labour agreement or in a staff handbook. Important is that it can be demonstrated that the employee has knowledge of the non-competition clause and that this information was handed to him.

Substantive requirements

A non-competition clause is also bound to some substantive requirements, depending no the kind of company, the sector etc. Also, the provision may only be used with a fixed period during which the employee may not perform competitive activities against his former employer. Under certain circumstances not only time, but also a geographical radius should be indicated, within which the provision applies.

Case law

Case law shows that a period of one year usually is considered to be reasonable. Within a year the situation can change, or the knowledge that the employee required during the employment can have gotten irrelevant or outdated. A reasonable geographical radius is harder to determine, because this depends upon circumstances, like the sector of the employer. A local supermarket in Eindhoven is no competition to a local supermarket in Hong Kong, but if we replace ‘supermarket’ with ‘chip manufacturer’ or with a company that makes navigation systems, this could change the case.

Negotiate

If you are offered a labour agreement with non-competition clause, do not think too lightly of this. It limits one of your constitutional rights and your freedom to choose where you want to work. It is advisable to try to negotiate on the provision. If you do not succeed in getting rid of the clause, then try to negotiate on the duration, the radius or try to turn it into an agreement not to apply for work with partners of the company.

Signed – what now?

Have you signed anyway and have you received an offer of a competing company? Think this through properly, because it can have large consequences. The employer can claim damages, which can run up quite high. Because it is hard to specify the damages, most employers use a penalty clause in the labour agreement. Then the employee has to pay this amount, regardless of the actual damage. This penalty usually consists of a set amount, plus an additional amount for every day that the violation continues (with or without a maximum amount). Penalties can run up to several ten thousands of euros.

Always have the validity of the provision checked by an attorney. Employers still make mistakes in the use of such provisions. Case law in combination with extraordinary circumstances could also offer some leeway, for example because personal circumstances may be more important than the interests of the employer.

Have you signed a non-competition clause and do you want to leave your employer or hear more about your possibilities, contact our attorney Suzanne van Dijsseldonk LL.M.