News Update Employment & Pensions

Signs of improper use

Minister Koolmees has commissioned research into the operation of the non-competition clause in employment law. This was prompted by a motion adopted by the House of Representatives in response to signals that employers were increasingly using non-competition clauses to bind employees in a tight labour market rather than to combat unfair competition.

For this reason, the government has been asked to examine how the use of the non-competition clause can be limited to what is strictly necessary.

The motion asked that research (i) consider a ban on non-competition clauses in fixed-term contracts. Since 2015, the legislation for non-competition clauses in fixed-term contracts has already been tightened. In principle, a non-competition clause may not be included in a fixed-term employment contract unless there are compelling business or service interests. Employers must then clearly motivate this interest in the employment contract.

The ban on non-competition clauses in fixed-term contracts is in line with the Borstlap Committee's proposal. The latter goes one step further and proposes to include a duty to state reasons for a non-competition clause for open-ended contracts (as is already the case for temporary employment contracts).

The motion also calls for (ii) consideration to be given to the possibility of limiting the maximum duration and geographical scope of the non-competition clause in open-ended contracts and (iii) for an employer to be obliged to pay compensation if it compels an employee to adhere to the non-competition clause.

Investigation report

The investigation report (only in Dutch) shows that many employers include a non-competition clause as a standard clause in the employment contract, even for employees who do not have access to knowledge and business contacts that could harm the employer's competitive position. Often a duration of more than one year and multiple fines are included.

Furthermore, it appears that the purpose for which an employer includes a non-competition clause is not always clear to the employee. Although it is an improper use of the non-competition clause, one in three employers use it to bind hard-to-replace employees.

The survey shows that employers are satisfied with the non-competition clause and that there is little support for a mandatory maximum duration or compensation scheme. Employers who support reform are particularly in favour of a justification requirement for non-competition clauses in open-ended contracts.

Recommendations

The researchers recommend giving the non-competition clause a clearer profile by, for example, imposing stricter requirements on the reasons for the decision or by stipulating a fee. A non-competition clause with a clearer profile would, among other things, also make legal proceedings on this less unpredictable.

Minister Koolmees concludes that the investigation report in combination with the recommendations of the Borstlap Committee give cause to take a closer look at the non-competition clause. In the coming period, the aforementioned research questions and the proposals of the Borstlap Committee will be further elaborated. By the end of 2021, the Minister will inform the House of Representatives about the possible policy options.

We will keep you informed of developments.