Changing core business affects non-competition clause

In Dutch employment law it is common to include a non-competition and/or a non-solicitation clause in a labor contract. Judges are generally reluctant to overrule these clauses in court but recently an interim relief judge had reason to suspend an employee’s non-competition clause. Dutch employment law solicitor Sander Schouten clarifies this case.

Non-competition clause contractually agreed

In general a non-competition clause prescribes that an employee is not allowed to employ work, either for himself or for another company, which is competing with the activities of his (former) employer during a certain period (usually 2 years) after termination of his employment agreement. Because a non-competition clause will restrict the employee for a substantial period, a clause is only legally valid if it is laid down in a contract (so an oral non-competition agreement is invalid). If the employee breaches this rule of contract, he is most certainly subject to a hefty penalty. The employee can request a judge to lift this restriction but this request is not likely to be awarded.

Employee claims suspension of non-competition clause

In litigation that ended in preliminary proceedings an employee (a general-director of a company) who was dismissed by his employer, claimed that the non-competition clause was unfair: at the time the parties had entered into the labor contract (more than a decade ago) the core business of the employer was completely different than it was when the employee got laid off. Besides, the employee had also seen his position within the firm change. The Dutch lawyer of the employee requested the interim relief judge to suspend the non-competition restriction in order for the employee to be free to accept a job at another company in the same industry.

Dutch law: renewed clause in new situations

In his decision the judge firstly emphasizes that the guiding principle is that a new non-competition clause should be contractually agreed when the working relation changes in such extend that the effects of the existing non-competition clause are considerably more restrictive. This principle also applies when the core business of the company have changed completely resulting in entirely different function and work of the employee.

Judge: clause too restrictive so suspension granted

In this case the original activities of the employee were narrowed down to the commercial sale and promotion of one particular (and very Dutch) novelty item. Nowadays the company has shifted their business to sales and developing of more general promotional concepts. This has led to an expansion of their competitive work field due to which the non-competition clause restricts the employee in a much greater extend than he could have envisaged when agreeing on the clause. The judge therefore grants the employee’s claim and suspends the restriction.