Since the Work and Security Act (in Dutch: ‘Wet werk en zekerheid’) came into effect, the main rule is that a non-competition clause in a fixed-term employment contract is not allowed. An exception to the main rule is possible if the employer can justify that the non-competition clause is necessary because of ‘compelling business or service interests’. In this blog, we discuss the validity of a non-competition clause in a fixed-term employment contract.
The non-competition clause
A non-competition clause restricts the employee from working for a competitor and/or performing competitive work after the end of the contract. In any case, the clause is valid under the following conditions:
- The clause has been agreed upon in an employment contract for an indefinite period of time;
- The clause has been agreed upon in writing;
- The employee is of age.
In principle, therefore, it is not possible to include a non-competition clause in a fixed-term employment contract. Employees with a temporary employment contract would otherwise suffer a ‘double disadvantage’: they have an employment contract with a limited duration, and the non-competition clause hinders their transfer to a new job.
Substantial business or service interests
There is one exception to the main rule. If the employer can justify in writing that the clause is necessary because of serious business or service interests, a non-competition clause can be agreed upon in a fixed-term employment contract.
Compelling business or service interests include, for example, the specific knowledge or business information that the employee will gain during his or her employment, where the employer will be disproportionately disadvantaged if the employee transfers to a competing company. The interests must exist not only at the time the non-competition clause is entered into, but also at the time the employer invokes the clause.
The justification
The justification for the non-competition clause must be tailored to the position and/or work of the employee in question. It can be 1) included in the clause itself, 2) attached below the clause, or 3) included in a separate document prepared and signed by both parties at the same time as the clause. A reference to another document is not sufficient. Nor can the non-competition clause be motivated later (as yet). Without justification, a non-competition clause in a fixed-term employment contract will be null and void.
Note: re-negotiation of a non-competition agreement
In the following cases it is advisable to re-agree the non-competition clause in writing:
- If a new employment contract is entered into, whether this is an extension of an existing contract or a conversion of a fixed-term employment contract to an employment contract for indefinite term;
- If different terms and conditions of employment are agreed upon in the new employment contract or if the employee assumes a different position. In that case, there is in fact a risk that the non-competition clause will become ‘more onerous’, with the result that the non-competition clause that covered the old situation will lose its validity;
- In the event of a transfer of undertaking or transfer to another employer.
Do you have questions about the non-competition clause? If so, please feel free to contact one of our attorneys.