Non-competition clause in case of dismissal

Employees often work with sensitive company information, such as customer databases, product information and market strategies. This is information that must not fall into the hands of competing companies. Employers also want to prevent employees from approaching existing customers during or after the end of their employment in order to serve them themselves. It is therefore wise to include a non-competition clause, possibly linked to a penalty clause, in the employment contract.

Non-competition clause: validity period of agreements

A non-competition clause allows an employer to impose restrictions on an employee. For example, it may be important for a company that a former employee does not start working for a competing company or approach existing customer relationships after dismissal or departure. The agreements laid down in a non-competition clause take effect upon dismissal, departure to a new employer or when an employee decides to start their own business. The term of validity of the clause is not indefinite. The clause is often valid for one or two years. This is laid down in writing in the clause.

A non-competition clause may relate to:

• The type of work that an employee is not allowed to perform

• The area or location where an employee is not allowed to work

• The period of validity of the non-competition clause

Non-competition clause in a fixed-term contract

Whether a non-competition clause is possible depends primarily on the type of employment contract. Is it a fixed-term employment contract? In principle, no clause can be agreed in that case. There are only a few situations where an exception is made to this rule. However, strict legal requirements apply. Including a non-competition clause in a fixed-term employment contract is only permitted if there are compelling business interests or service interests.

Since the Work and Security Act (WWZ) came into force, an employer may only include the clause in the contract if a written justification is provided. Such justification may be based, for example, on very specific knowledge or business information acquired by the employee, whereby the employer would be disproportionately disadvantaged if the employee were to move to a direct competitor. This obligation to provide justification does not apply to permanent contracts.

Non-competition clause in a permanent contract

It is more common to include a non-competition clause in a permanent contract. There are also fewer conditions attached to this. However, the clause must be reasonable. This means that the duration and restrictions imposed on the employee in terms of scope, duration and geographical area must be acceptable and appropriate.

Although it is not mandatory to substantiate the non-competition clause in writing in the case of a permanent employment contract, it is advisable for an employer to substantiate their interests in this collaboration as well. This puts the employer in a stronger position if the clause is breached. The substantiation of the clause can be part of the employment contract itself, but can also be included in the company regulations. In that case, reference must be made to this in the employment contract.

A non-competition clause in the event of dismissal is only valid if:

1. The clause is laid down in writing

2. The employee is 18 years of age or older when the clause is agreed

3. The clause is part of an employment contract for an indefinite period 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 note 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-competition clause in such a way that the employer’s interests are and remain safeguarded, even if the employment relationship changes.

At the same time, an employee’s employment opportunities must not be completely restricted. The clause must therefore be carefully worded, for example by limiting its duration and geographical scope. If a non-competition clause is too broadly worded, there is a risk that it will be wholly or partially invalidated by the court. Legally valid non-competition clauses must be precise and attributed to the specific business operations.

The effect of the relationship clause

The relationship clause is a type of non-competition clause or confidentiality clause. This means that the rules that apply to the non-competition clause also apply to the relationship clause. This condition means that an employee is allowed to move to a new employer, but is prohibited from taking clients, business relations or employees with them to their next job.

In practice, the restrictions imposed on an employee by this provision are considered more reasonable and appropriate than the restrictions imposed on the employee by a non-competition clause. A (subdistrict) court is therefore more likely to rule that the “relationship clause” can remain in force, even though it limits the employee’s options.

Frequently asked questions / FAQs about non-competition clauses

What are the consequences of violating a non-competition clause?

Violating a non-competition clause can have serious consequences for an employee. Often, the employee will owe a contractually agreed penalty and the employer can take legal action to force the employee to stop the competing activities. It is essential for the employer that the non-competition clause is legally correct, so that it is actually enforceable and offers protection against unfair competition. This ensures that your position as an employer remains strong if agreements are not fulfilled.

Can a non-competition clause be wholly or partially annulled by the court?

A non-competition clause can be annulled in whole or in part by the court if it unreasonably disadvantages the employee in relation to the employer’s interests to be protected. The court will weigh up the interests involved: if, for example, the clause is found to be too broad in terms of time, area or activities, the court may limit it or even annul it completely. It is therefore important that a non-competition clause is carefully and specifically formulated so that it will stand up in legal proceedings. In principle, non-competition clauses are now only permitted in contracts for an indefinite period.

Protect trade secrets and investments

Do you want to protect valuable information, acquired knowledge or trade secrets? Or would you like more information about the terms and conditions of a non-competition clause? Fruytier Lawyers in Business specialises in drafting employment contracts that include a non-competition clause or relationship clause. We can also assist you in a dispute about the interpretation and contractual obligations of a provision. For more information, please contact one of our solicitors specialising in employment law.

Authors: Employment law solicitors Judy Sliepen and Myrddin van Westendorp