EMPLOYMENT CONTRACT

Non-competition clause in employment contract and settlement agreement

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According to the law, a non-compete clause cannot be agreed just like that. There are certain conditions attached to this. Read more about it in this article.

The non-competition clause is not only included in the employment contract between employer and employee, but can also be agreed in an assignment agreement between client and contractor. But the fact that it is agreed by the parties does not always mean that the clause is legally valid. This blog looks at what conditions the non-competition clause must meet.

What is a non-competition clause?

What exactly is the non-competition clause and what are its consequences? According to Art. 7:653 of the Civil Code, an employment contract between an employer and employee can include a clause that restricts the employee from working for a competitor after the end of the contract. Therefore, we also call this a 'post contractual clause'. This can have very significant consequences, as the employee's freedom to work is restricted for a certain period of time.

Non-competition clauses come in many shapes and sizes. It often prohibits the employee from working for a competitor. The clause may also stipulate that the employee may work at a competitor, but may not approach customers of old employer at the new employer. This is also known as a ‘non-solicitation clause’ . Such a clause can put an employee at a great disadvantage in the search for a new job.

The question is therefore whether such a non-competition clause is reasonable. To determine this, we look at the circumstances of the case. Consider the duration and the scope of the clause. A non-competition clause for ten years will not be considered reasonable. Similarly, a clause stipulating that a supermarket manager is no longer allowed to work for another competing supermarket across Europe will not stand. The non-competition clause will then be considered unreasonable.

Competition clause conditions

According to the law, a non-competition clause cannot be agreed just like that. There are certain conditions attached to this. Summarised, these are the following conditions:

It must be an open-ended employment contract;
In some cases, a non-competition clause can be agreed in a fixed-term employment contract. This is only possible if the employer motivates in writing that the non-competition clause is necessary because of important business or service interests. Specific activities or jobs must be involved, for instance. This needs to be weighed up by the court on a case-by-case basis;
The clause must have been agreed in writing with an adult employee;
If the termination of the employment contract is the result of seriously culpable acts or omissions by the employer, the employer cannot invoke the non-competition clause.

If a non-competition clause is not necessary because of compelling business or service interests or the employee's freedom of employment is unreasonably restricted, the court can annul the non-competition clause in whole or in part. If the clause has been agreed with a minor employee, it is null and void. The employer cannot then invoke it.

Non-competition clause in assignment agreement

Similar to an employment contract, it is possible to include a clause in an assignment contract that excludes joining a competitor. The client may have an interest in such a non-competition clause, as they provide the same services or sell business. Without a non-competition clause, the new client may have an advantage as they may adopt the old client's working methods. This may create unfair competition.

Again, the clause must be reasonable. A six-month competition clause for competitors in the same municipality is reasonable, but a ten-year clause for the whole of the Netherlands and Germany is not. In any dispute, the court will look at this on a case-by-case basis. The other rules that apply to employment contracts do not apply here.

Fictitious employment

Finally, it is always worth checking whether there is nofictitious employment instead of a contract of assignment, or false self-employment. This means that a contract of assignment has been agreed, but it is actually an employment contract. This has tax and employment law advantages for the 'client'.

To recognise fictitious employment, several aspects are important:

	Assignment agreement	Employment contract
*Personal employment*	It is possible for someone else to do the work	Only you may carry out the work
Employer authority	You can decide how you do the work	The 'employer' gives instructions and directions on how to perform the work
Remuneration	You send an invoice and the remuneration may differ	You will receive a fixed salary and be paid on sick leave

If there is fictitious employment, then there is an employment contract and not an assignment agreement. As a result, the same rules apply to the non-competition clause as to the employment contract. It must be an employment contract for an indefinite period, unless there is a justification that the non-competition clause is necessary because of important business or service interests.

Advice on non-competition clause?

Need advice on a post-contractual clause, such as a non-compete clause? Send your question to Arbeidsjurist Eindhoven for a free check. If we can be of added value, we will be happy to work with you to show you how we can make a difference. Please contact Need advice on a post-contractual clause, such as a non-compete clause? Send your question to Arbeidsjurist Eindhoven for a free check. If we can be of added value, we will be happy to work with you to show you how we can make a difference. Please contact us.

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