Here is what you need to know about the non-compete clause

The non-compete clause is regulated by law in Section 7:653 of the Netherlands Civil Code (BW). In paragraph 1 of this article, a non-compete clause is defined as a stipulation existing between the employer and the employee, restricting the employee in their entitlement to certain types of activity or employment on termination of the agreement.

Are there restrictions to a non-compete clause?

This definition in the civil code may give rise to the notion that a non-compete clause is a far-reaching measure. This is true to some extent; the non-compete clause is in fact a restriction of one’s right to free choice of work as laid down in Section 19 paragraph 3 of the Netherlands Constitution.

Still, the legislaion has not been prepared to prohibit a non-compete clause in agreements. But certain restrictions have been imposed, while in certain cases the court may decide to reduce the scope of the non-compete clause at issue.

Valid restrictions that may be imposed on a non-compete clause are included in the same section of law, to the extent that a non-compete clause is valid only if the employment agreement is for an indefinite period and has been agreed in writing between the employer and an employee of age.

Conditions for a non-compete clause

The above demonstrates that a non-compete clause is valid only if three conditions have been met:

Indefinite period

The first condition is that the employment agreement must be for an indefinite period. If this is not the case - and the employment by consequence is for a definite period - a non-compete clause is allowed to a certain extent only.

Recorded in writing

The second condition is the requirement of an agreement recorded in writing. The non-compete clause must have been agreed upon in writing between the employee and the employer. The underlying notion is that the employee has been in a position of carefully considering the consequences of the onerous clause in the agreement.

The Netherlands Supreme Court has ruled that the requirement of a written agreement has been met if the employee has signed an employment agreement including a non-compete clause, or has entered into another employee benefits scheme which includes said non-compete clause, as in these cases the employee gives proof of having been informed of the written non-compete clause imposed on them, and has consented to this non-compete clause.

As a consequence, the requirement of a written agreement does not necessarily imply that the non-compete clause must actually be included in the employment agreement. The employment agreement itself may refer to a collective bargaining agreement (CAO) or another employee benefits scheme which includes this non-compete clause.

Being of age

The third condition for the validity of a non-compete clause is the employee being of age. Possible invalidity is not lifted if a person underage was authorised by their legal representative to consent to the non-compete clause at issue.

Important to remember

Last, but not least, it is worth mentioning that a non-compete clause may be entered into at the commencement, during the term or upon the termination of the agreement between the employer and the employee.