In a recent letter to the Netherlands' House of Representatives, Minister Van Gennip announced a proposed reform of non-compete clauses, including non-solicitation clauses. It is clear through these proposed amendments that the government wants to limit the use of such clauses.
Below, we set out what the government is planning.
Background to the reform
The government commissioned research into the use of non-compete clauses. Some 37% of Dutch employees are bound by such a clause, double the figure in 2015. This is almost always a standard clause, though many employees do not have access to sensitive information about the company or business contacts. And protecting the accumulated know-how and goodwill, which is covered by the term "market position," is precisely the purpose of the non-compete clause. Moreover, the Dutch Supreme Court recently confirmed that 35% of employers appear to use the non-compete clause to bind employees, for which the clause is not intended.
A company's market position can be affected, for example, if the employees at issue are aware of essential relevant (commercial and technical) information or unique work processes and strategies because of their position and if they can use this knowledge for the benefit of their new employer, the Supreme Court said. This gives the new employer a competitive advantage over the old employer. The same applies if the ex-employee works so closely with certain customers of the old employer that these customers then move to the new employer.
In short, at present, many employees are unnecessarily restricted in their free choice of employment, which is hampering workforce mobility and, as a result, the proper functioning of the labor market.
Basic principle underlying the plans: use of a non-compete clause will remain possible to protect the employer's market position but needless use of the non-compete clause should be avoided
The basic principles underlying the potential reform of the non-compete clause focus on the following points:
- Avoiding unnecessary use;
- Protecting an employer's market position via a non-compete clause should remain possible;
- Increasing legal certainty by clarifying in advance when a non-compete clause can be included and invoked.
These basic principles would be carried out through the following proposed law changes:
- Including a statutory limitation on the duration of non-compete clauses;
- Stipulating that the geographical scope of the clause must be included, specified and justified;
- Requiring the employer to justify in the non-compete clause the serious business interest that makes the clause necessary, as is already the case for a non-compete clause in a permanent employment contract;
- Requiring, in principle, that the employer pay the employee compensation, based on a percentage of their most recently earned salary, if it holds the employee to the clause.
The Minister expects to offer the bill for internet consultation by the end of 2023.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
