Most permanent employment contracts in the Netherlands include a non-compete clause, which stipulates that you are not allowed to work for a competing company for a certain period of time within a certain region. The wording of this clause is often quite broad and there is a chance that it can prevent the employee from applying for a job with a new employer, especially if the job is in a small and specialised industry.
However on March 1, 2024, the Council of Ministers approved a new bill which will change the legislation for these non-competition clauses. The changes are expected to take effect in early 2025. Here's a brief overview of what's changing.
Why the non-competition clause was changed
Before the bill was introduced, the Minister of Social Affairs and Employment commissioned research on non-competition clauses. The research showed that the clause is often included as a standard clause in Dutch employment contracts by employers, without considering the interests of the employee.
According to the legislator, the non-competition clause is often used for the wrong reasons. This causes employees to be restricted from changing jobs while still continuing to work within their expertise and speciality.
The new bill
With the new bill, the legislator wants to limit the use of the non-competition clause. The proposed bill includes the following provisions:
- Limiting the maximum duration: A non-competition clause can have effect for a maximum of one year.
- The non-competition clause is only valid when it includes a geographical scope.
- The non-competition clause must contain a written justification of the substantial business or service interest that justifies the restriction. This already applies to fixed-term employment contracts, but will then also apply to employment contracts entered into for an indefinite period.
- Establishing a mandatory compensation for the employee when invoking the non-competition clause. The compensation is at least half of the employee's monthly salary for each month that the non-competition clause is in effect, or a higher amount if agreed upon. The mandatory compensation must be paid no later than the last day of the contract of employment.
Current rules
When the proposed law comes into force in 2025, the current rules will continue to apply to non-competition agreements concluded before the effective date of the new law. This means that non-competition clauses with a scope for more than one year and / or without a geographical scope, will not have to be amended. The employer can still invoke these clauses.
After the law takes effect, however, the employer must always pay compensation to the employee if the non-competition clause is invoked. This also applies to non-competition clauses that have been agreed upon before the law takes effect.
Legal action
Just as under the current law, once the new law takes effect, the employee can ask the court to (partially) suspend the non-competition clause. The judge will then weigh the interests of the employee against the interests of the employer. Specifically, the court will assess whether the employee would be unfairly disadvantaged by the non-competition clause in relation to the employer's interests, who may use the non-compete clause to protect their own business assets from impairment.