By mr. Jan Willem IJsseldijk – Ijsseldijk van Cappelle Advocaten

The non-compete and/or non-solicitation clause in an employment contract: a dead letter or beware?

Using our daily employment and dismissal law practice, I have the following top three tips for employers.

Beware, especially with the labour market strained and good staff scarce by the end of 2021. Skilled employees are sometimes lured away by recruiters, approached directly by competitors or employees working there, or informed of other opportunities with higher salaries or better working conditions via social media.

A legally valid non-compete and/or non-solicitation clause can limit an employee's ability to be employed by and competitor or relation of the former employer.

What should employers and employees pay attention to?

First of all, section 7:653 of the Civil Code is important here. This article reads as follows:

Article 653

1. A clause between the employer and the employee restricting the latter's authority to work in a certain way after the end of the contract is only valid if:
   a. the employment contract was entered into for an indefinite period; and
   b. the employer has agreed this clause in writing with an employee who is of age.
2. In derogation from paragraph 1, opening words, and part a, a clause as referred to in paragraph 1 may be included in a fixed-term employment contract, if the employer's written justification accompanying that clause shows that the clause is necessary because of important business or service interests.
3. The court may annul a clause as referred to in paragraphs 1 and 2:
   a. set aside entirely if the clause referred to in paragraph 2 is not necessary because of serious business or service interests; or
   b. set aside in whole or in part if, in relation to the employer's interest to be protected, the employee is unfairly disadvantaged by that clause.
4. The employer cannot derive any rights from a clause as referred to in paragraph 1 or paragraph 2, if the termination or non-continuation of the employment contract is the result of seriously culpable acts or omissions on the part of the employer.
5. If a clause referred to in paragraph 1 or paragraph 2 significantly restricts the employee from working other than in the employer's service, the court may always determine that the employer must pay compensation to the employee for the duration of the restriction. The court shall determine the amount of this compensation on an equitable basis in view of the circumstances of the case. The compensation is not due if the termination or non-continuation of the employment contract is the result of seriously culpable acts or omissions by the employee.

Employers should ensure, among other things, that:

1. employees actually sign the employment contract containing such’a clause. After all, it must have been agreed in writing. It still happens that there is no signed employment contract with competition and/or relation clause even though the employee in question has been working for years;
2. the competition and/or relation clause is well formulated, clear and effective;
3. when the content of the employee's job changes seriously, it may be necessary to re-enter into and sign a non-competition and/or relation clause;
4. there is also a penalty clause included, which applies if the competition and/or relation clause is breached;
5. employers cannot include a non-competition and/or non-solicitation clause in fixed-term employment contracts. An exception to this is only possible if it is justified in writing that the clause is necessary because of compelling business or service interests. In practice, the justifications often do not hold up in court because they are subject to a strict test. Care is therefore in order here;
6. when hiring staff, they should examine very carefully whether the person in question had agreed a non-competition and/or non-solicitation clause with his/her previous employer. If that is the case, then the new employer runs a risk of being held liable by the ex-employer of the employee in question because taking advantage of that employee's breach is also in itself unlawful.

Employees should further ensure, among other things, that:

1. they are well aware of what they are signing. Like salary terms, such clauses are open to negotiation;
2. When they are offered a nice, often better-paid job elsewhere, but have signed a non-competition and/or non-solicitation clause, they should think about and/or discuss the consequences before resigning.  Can they just go and work for the new employer, what are the risks? Practice shows that it is better to think these things through before resigning. After that, there is often much less room to settle.

The sneaky thing about a non-competition and/or non-solicitation clause is that breaches are often subject to hefty fines and can cause enormous stress when an employee is sued by the former employer.  The adage: “think before you start” really applies here. A short conversation with one of our lawyers can often shed a lot of light or, at the very least, lead to the conclusion that further investigation is necessary.

A short conversation with one of our lawyers can often shed a lot of light or, at the very least, lead to the conclusion that further investigation is necessary.

This short article was drafted by mr Jan Willem IJsseldijk. It contains only a few points of interest in a non-competition and/or relation clause and it has not been the intention to cover all aspects in full. This is virtually impossible because every case is slightly different. Our advice is therefore: if you are faced with an issue involving the above, contact us in good time.