Introduction
Imagine you are looking for a new job and successfully complete the application process. You are then invited to sign your employment contract. However, this agreement includes a clause that prohibits you from working for competing companies after your employment ends, the so-called non-compete clause. Employers use this clause to protect business interests such as trade secrets, knowledge, and client data.
The non-compete clause, as regulated in Article 7:653 of the Dutch Civil Code, is an agreement between the employee and the employer stating that the employee is not allowed to perform certain work for competitors during and after the termination of the employment contract.
According to Article 7:653 paragraph 1 of the Dutch Civil Code, an employer may only include a non-compete clause in an employment contract if:
- The contract is for an indefinite term.
- The employee is of legal age.
- The clause is agreed upon in writing.
If the contract is for a fixed term, the employer must additionally provide a written explanation of the compelling business or service interests that justify the non-compete clause.
Status quo
Employers currently use non-compete clauses in such a way that it can unjustifiably limit an employee’s freedom to change jobs. As a result, employees are hindered from switching positions within their area of expertise. This also makes it more difficult for employers to hire new staff, negatively impacting the overall functioning of the labour market.
Coming legislation
In 2024, the Dutch government submitted a draft bill to modernize the non-compete clause (hereinafter: the Bill). The intended implementation date was set for January 1, 2025. However, the 2025 annual plan from the Ministry of Social Affairs and Employment indicates that the Bill will be submitted no earlier than Q4 of 2025. The Bill aims to tighten the regulations around non-compete clauses. The key proposed changes are:
- A maximum duration of one year for the clause, with written justification required for both duration and geographical scope;
- Written justification of compelling business or service interest required for all employment contracts;
- Employers must invoke the clause in writing at least one month before the contract ends, stating the duration for which it is being enforced;
- Employers must compensate the employee when invoking the clause. This compensation equals 50% of the last monthly salary for each month the clause is enforced. For example, if invoked for 12 months, the employee receives six months’ salary in compensation.
The legislator is also considering whether to prohibit non-compete clauses for employees earning less than €66,000 gross annually (full-time basis). This amount is determined based on the salary at the end of the employment relationship. Employees below this threshold would always be free to work where they choose. However, in a June 17th letter, Minister Van Gennip presented research findings suggesting that a salary threshold could hinder the protection of legitimate business interests, which are not necessarily linked to salary levels. To protect sensitive business roles, companies might feel compelled to reclassify certain positions with higher pay.
Conclusion
The non-compete clause is often included in employment contracts to safeguard business interests. The proposed legislation aims to restrict its use. The most significant change is that employers would be required to compensate employees when enforcing the clause. These changes are not yet in effect. If you are asked to sign an employment contract, consider carefully whether you are willing to limit your future employment freedom.
At Forsyte Advocaten, we are specialised in handling non-compete clauses. If you seek advice on this topic, we are ready to assist you.
