A non-compete clause must be clear and reasonable

Your employee learns a lot with you and knows your customers and suppliers. So it is unfortunate if the employee then resigns and joins a competitor, or starts their own business in the same industry and working area. You can prevent this with a non-compete clause.

Research shows that 1 in 3 employers include a non-competition clause in their contracts. These set out the agreements between employer and employee that continue to apply after the employment is terminated. You may not include a non-compete clause in temporary contracts unless there are important business or service interests at stake. Record everything well and take changed circumstances into account.

Non-compete and non-solicitation clauses

A non-compete clause ensures that an employee cannot join your competitor or start their own business in the same industry after their employment with you ends. In addition to a non-compete clause, you can include a non-solicitation clause. In that case, the former employee may not approach your customers.

As an employer, you get to decide what is included in the non-compete or non-solicitation clause. That is, what activities it covers and what the penalty is for violating it. For example, you may also agree that the employee may not join a competitor within a certain distance from your business after their employment ends. It is important that an employer can properly explain why a geographical agreement has been included. For example, the distance involved is related to the sales market or the operating area.

The clause is valid only if it meets certain conditions, and if you put the arrangements in writing. For example, in the employment contract. And the employee must agree to the clause in writing.

Please note: make sure the competition or non-solicitation clause is always up to date. Change its terms if, for instance, the employee starts a new position within your company. Or if you expand the scope of your company’s activities.

Releasing an employee from a non-compete clause

In some cases, the former employee may want to nullify the non-compete or non-solicitation clause. For example, because they can get a job with one of your clients. If you have no objection to this, you and your employee can amend the non-compete clause or agree that it will lapse. If this is not a workable solution, the employee can go to court to have the clause suspended or annulled. If the court rules in the employee’s favour, the clause no longer applies and the employee can work for a competitor or a customer without being in breach.

Balancing interests

In a court case, the judge weighs the employer’s interest against that of the employee. The employer negotiated the clause to protect accumulated knowledge, existing relationships, and its competitive position. The employee’s interest lies in the freedom of choice in employment. That right is provided for in the Dutch Constitution. The court also takes account of the possible improvement in the employee’s position with the other employer in its judgement.

Example: an employee (in Dutch) was employed as a chief mechanic, and wanted to work as a supervisor at a customer’s site. There were opportunities for the employee to progress with the customer, while they had got as far as they could in their current position. The employer could not make a plausible case that work and turnover were lost due to the employee’s departure. According to the court, the employee’s freedom to choose where they worked and the opportunities for advancement took precedence over the enforcement of the non-compete and non-solicitation clause. The employer was not allowed to impose unreasonable restrictions on the employee, so the employee could join the client without any problem.

Enforcing the non-compete clause

If your employee resigns and starts working for a competitor while they are bound by a non-compete clause, you can take action as an employer. Determine whether you want to hold the employee to the non-compete clause. If so, notify your employee in writing within their notice period and state that you will hold them to the non-compete clause. Check whether the competitor is also aware of the clause. Perhaps you can make arrangements with the competitor to take over the employee.

You can also go to court to demand that the employee comply with the non-compete clause and pay a penalty or damages. Reliance on a non-compete clause is justified only when the employer has a compelling interest in doing so. The mere fact that the employer loses a good employee because they start working for a competitor is insufficient for a judge to uphold the non-compete clause. Make sure you can demonstrate the overriding interest, by showing, for example, that losing knowledge and trade secrets to a competitor puts you at a disadvantage. Or that the employee will take customers from the company. You may also be harmed by the investment you have made in training the employee and enhancing their expertise.