Reform of the labour market and non-compete clause
Not infrequently, the competition clause is the subject of dispute in court. Case law on non-compete clauses is abundant. This is because, in practice, many employers include a non-compete clause in their contracts as standard and employees find this too much of a hindrance to their further development on the labour market. A report published last year by the Dutch research bureau Panteia showed that employers use non-compete clauses not only to protect their competitive position, but often to retain staff who are difficult to replace, which is not the intention.
Purpose of non-compete clause
The purpose of a non-compete clause is to protect the competitive position of the former employer. This means the risk of an employee transferring know-how about business processes, market-sensitive information and customers to a subsequent employer who can then profit from this at the expense of the former employer. The downside of this is that it constitutes a restriction on the employee’s right to free choice of employment as laid down in our Constitution. A judge will always weigh the interests of employer and employee against each other. Employers also have an alternative via the Trade Secrets Act, but this costs the employer much more.
Non-compete clause in practice
The study shows that the non-compete clause is increasingly being included in employment contracts as an automatic clause, with or without a penalty for breaching it. The question is whether an employee who wants the job can afford to object to this. It costs the employer nothing to include a standard clause in the contract and he can choose for himself whether he wants to invoke the non-compete clause at the end of the day. Whereas an employee must first incur the legal costs of contesting the clause. The burden of proof rests on the employee. During the contract, it can also prevent the employee from applying elsewhere for fear of the penalty. If the non-compete clause is used for improper reasons, the employee is therefore put at a substantial disadvantage.
At the start of the employment process, the consequences are often not foreseen by the employee. Nor, for that matter, are the consequences for the employer. After all, the employer can be faced with high costs for legal proceedings as a result of a competition clause that has been used carelessly and is therefore untenable. The outcome of such legal proceedings is unpredictable and therefore creates too much legal uncertainty for both parties.
The proposed policy options consist of the following elements:
- Limitation of non-compete clause to a maximum of 1 year
- Obligatory justification and explication of geographical scope in the clause;
- Non-compete clause not apply in case of bankruptcy;
- non-compete clause not apply in the event of dismissal during the probationary period;
- only invoke non-compete clause if dismissal is at employee’s request;
- Compensation in advance when the clause is concluded or afterwards when the clause is invoked;
- Restriction of non-compete clause only in case of serious business interest, reasons for commencement of clause.
Experts argue for financial compensation for the use of a non-compete clause. This would provide the employer with an incentive to determine which employees are actually potentially harming its business interests. This provides an incentive for correct use. If an employee is not a realistic danger, an employer will be less willing to pay extra for this. Such an obligation for the employer to pay compensation is already common practice abroad. The amount of the compensation must be worked out in more detail. The starting point is that it must be so high that the employer does not invoke the clause unnecessarily.
The ultimate goal of the new policy is to create a situation in which there are still opportunities for employers to protect the company’s assets, while increasing labour mobility and legal certainty for both parties. To be continued.
For questions about the correct application of a non-compete clause and the risks involved, please contact one of our experts today.