Invoke non-competition clause in 2025? Expensive joke for employer

In recent years, more and more employers are putting the non-competition clause as a standard clause in the employment contract. We too often recommend including a competition and/or relation clause in the employment contract. Especially in highly competitive markets, such as in recruitment or sales positions.

A study in 2021 found that employers include a competition or relation clause even when there is no need or reason to do so. This causes employees to be restricted in their free choice of employment. As a result of this research, a draft bill has emerged to curb the non-competition clause. And not so little too. These restrictions will be quite severe.

The Council of Ministers has approved the Bill on Modernisation of Non-competition Agreements and the proposal has been open for internet consultation since 4 March 2024. It will tighten the rules governing the non-compete clause.

In short, it comes down to the fact that an employer will soon be allowed to invoke the non-competition clause up to a maximum of 1 year after the end of the employment contract and that, in order to do so, an employer must pay the employee 50% of the monthly salary each month for every month he invokes the clause. Do you want to keep the employee to the maximum term of 1 year? Then you actually have to pay six months’ salary at the end date! The internet consultation already raised many questions about possible abuse by calculating ex-employees.

The following changes are now in the bill:

• a non-competition clause can have effect for a maximum of 1 year after the end of the employment contract
• the employer must justify the duration of the non-competition clause in writing (is already done now)
• the employer must motivate the geographical scope in writing (is usually already done);
• the overriding business or service interest for a non-competition clause must be justified in writing for all employment contracts (so not only for temporary employment contracts, as is currently the case) and if that justification changes (because of job changes, e.g.), then this must be amended to which the employee must then again give consent;
• an employer must indicate immediately at the time of termination or in the event of termination by operation of law no later than one month before the end of the employment contract whether the non-competition clause will be invoked and for how long (there are exceptions, e.g. in the event of summary dismissal or dissolution by the subdistrict court);
• the employer must pay the employee compensation if the non-competition clause is invoked. The compensation is 50% of the last-earned monthly salary, for each month the non-competition clause is invoked. There is no cap on the salary. The payment must be made immediately on the termination date. There are also exceptions to this in case of summary dismissal or dissolution. Do you not pay on time? Then you may no longer invoke the non-competition clause, but employer must still pay;
• Does the employee violate the invoked non-competition clause? Then the compensation counts as an undue payment and the employee must repay it. The employer can also invoke a penalty clause provided it has been agreed in the employment contract (or settlement agreement);
• in a settlement agreement, you can deviate from the compensation obligation and invocation obligation.

Under the new bill, the non-competition clause will only apply after the end of the employment contract if the employer invokes the clause in writing and in good time and if the employer owes compensation. Is the clause invoked a day late or the compensation paid a day late? Then it is unfortunate but unfortunate. The employee can then join the biggest competitor and may keep the compensation if it has already been paid.

Competition clauses validly agreed before the bill comes into force will remain valid. However, an employer will have to pay the compensation if the employee is held to the clause.

The above would also apply to relation clauses that prevent employees from working for or with the employers’ relations, such as customers and clients.

Although the proposal still has to pass the Lower and Upper Houses first, the bill is expected to take effect as early as 1 January 2025.

As far as we are concerned, this bill goes too far with regard to the compensation obligation and calculating employees can easily abuse this regulation. Why?

Suppose an employee terminates on the last day of the month, the employer has to think that same day about whether to invoke the non-competition and/or non-solicitation clause. Employers then come under pressure and the question is whether the right decision is then taken. Especially if employees indicate (possibly wrongly) that they want to join the competitor. For instance, employees can easily take a paid holiday of (at most) six months and quietly look for a job with a non-competitor. The question is whether, as an employer, you can then invoke cheating and want to start (costly) proceedings for this to recover the compensation. And does the employer have to pay double compensation if it wants to invoke both the non-compete and relationship clauses?

Action employer for now?

Wait a little longer until it is clear whether the bill will be implemented in its current form, and then adjust the current models of employment contracts and settlement agreements for competition and relation clauses. In exceptional cases, anti-solicitation clauses may possibly also fall under these stricter rules.

Questions? Please contact one of our Employment Law attorneys Dennis Oud, Elke Hofman or Tessa Sipkema.