Non-competition clause in case of dismissal
An employee often works with company-sensitive information, such as the customer base, product information and market strategies. Information that should not end up with competing companies. An entrepreneur also wants to prevent employees from approaching existing customers during or after the end of employment to serve them themselves. It is therefore wise to include a non-compete clause, possibly coupled with a penalty clause, in the employment contract.
Non-competition clause: validity of agreements
A non-compete clause allows an employer to impose restrictions on an employee. For instance, it may be important to a company that a former employee does not start working for a competing company or approach existing customer relations after resignation or departure. The agreements stipulated in a non-compete clause come into effect upon dismissal, departure to a new employer or when an employee decides to start for himself. The validity period of the clause is not infinite. Often, the clause is in force for one or two years. This is put in writing in the clause.
A non-compete clause may cover:
- The type of work an employee may not perform;
- The area or place where an employee may not work;
- The period of validity of the non-compete clause.
Fixed-term contract non-compete clause
Whether a non-compete clause is possible depends first and foremost on the type of employment contract. Is it a fixed-term employment contract? In principle, no clause can be agreed then. In only a few situations is an exception made for this. However, this does involve strict legal requirements. Including a non-competition clause in a fixed-term employment contract is only allowed when there are substantial business or service interests at stake.
Moreover, since the Work and Social Security Act (WWZ) came into force, an employer may only include the clause in the contract if it is justified in writing. Such a motivation may lie, for example, in very specific knowledge or business information gained by the employee, where the employer would be disproportionately disadvantaged if the employee transferred to a direct competitor. In an open-ended contract, this obligation to state reasons does not apply.
Competition clause in an open-ended contract
Including a non-compete clause in an open-ended contract is more common. It is also subject to fewer conditions. However, the clause must be reasonable. This means that the duration and restrictions imposed on the employee must be acceptable and appropriate from a geographical point of view.
Although it is not compulsory to substantiate the non-competition clause in writing in the case of an employment contract for an indefinite period of time, it is advisable for an employer to substantiate interests in this cooperation as well. This puts an employer in a stronger position the moment the clause is violated. The substantiation of the clause can be part of the employment contract itself, but it can also be included in the company regulations. This must be referred to in the employment contract.
A non-competition clause in case of dismissal is only valid if:
- The clause is in writing;
- The employee is 18 years or older when the clause is agreed upon;
- The clause forms part of an open-ended employment contract or, in the case of a fixed-term contract, the necessity of the clause is justified in writing.
Accurate description of interests
It is important to know that an already valid non-competition clause does not automatically remain applicable if an employee is given another (higher) position within the company. It is therefore important to formulate the non-compete clause in such a way that the employer’s interests are and remain safeguarded, even if an employment relationship changes.
At the same time, an employee should not be completely restricted in employment opportunities. The clause should therefore be properly formulated, for instance by limiting the duration and geographical scope. If a non-compete clause is formulated too broadly, there is a risk that the court may annul all or part of the clause. Legally valid non-compete agreements must be precise and attributed to the specific business operation.
The effect of the non-solicitation clause
The relation clause is a species of the non-compete or non-disclosure clause. This means that the rules that apply to the non-compete clause also apply to the relation clause. This clause means that while an employee may transfer to a new employer, he or she is prohibited from taking clients, relations or employees with him or her to the next job.
In practice, the restrictions imposed on an employee by this regulation are more likely to be considered reasonable and appropriate than the restrictions imposed on an employee by a non-competition clause. A (subdistrict) court is therefore more likely to rule that the ‘relationship clause’ can be upheld, despite the fact that it limits the employee’s options.
Protect trade secrets and investments
Do you want to protect valuable information, acquired knowledge or trade secrets? Or would you like more information on the terms of a non-compete clause? Fruytier Lawyers in Business specialises in drafting employment contracts containing a non-compete or relation clause. We can also assist you in a dispute over the interpretation and contractual obligations of a clause. For more information, contact one of our lawyers specialising in employment law.« Back to employment law