Netherlands: Non-Competition Clauses Cannot be used to Bind Employees in a tight Labour Market

Author: Lydia Milders

Supreme Court ruling finds that non-competition clauses cannot be used to bind employees in a tight labour market.

Legal framework

A non-competition clause allows an employer to prohibit its employees from joining a competitor after the end of the employment contract. Article 7:653 of the Dutch Civil Code shows that a non-competition clause must meet a number of requirements, namely:

• The clause must have been agreed in writing;
• In the case of a fixed-term contract, the clause must contain a justification;
• The employee with whom the clause has been agreed must be over 18 years of age.

An employee who feels that he or she is being unfairly disadvantaged by a non-competition clause may ask the court to annul or moderate the clause. The judge reviews the non-competition clause by weighing the interests, ex Article 763 (3) b of the Civil Code.

A number of interests on the part of the employer are taken into consideration:

• The extent to which there has been investment in the employee;
• The extent to which the employee has sensitive business information including strategies;
• The size of the market in which the employer is active.

Some interests on the part of employee that are taken into consideration are:

• The employee’s attachment to the industry;
• The possibility of position advancement;
• The freedom of employment choice;
• The disadvantage when looking for a new job.

What happened in this case?

An employee has been working for his employer as an international driver for around five years. At some point, the employee switched to another employer in the same industry. His former employer was not amused by this move. The ex-employer took the matter to court and claimed a penalty for breaching the non-competition clause.

Judgment of the Subdistrict Court and Court of Appeal

The subdistrict court finds in favour of the ex-employer and grants his claim. The employee appealed against this judgment and was proven right. According to the court, the employee’s interests in nullifying the non-competition clause outweigh the ex-employer’s interests in upholding it. If the clause were to be upheld, the employee would be financially adversely affected while the ex-employer did not prove that the employee had business-sensitive information which would lead to unfair competition. The former employer disagreed with this ruling and appealed to the Supreme Court.

Judgment of the Supreme Court

According to the ex-employer, the fact that the employer wished to bind his employee for a certain period of time to protect the company’s assets was not sufficiently taken into account in the balancing of interests. Especially since there is a shortage on the labour market which makes it difficult to find replacement staff.

The Supreme Court ruled that an employer’s interest in retaining an employee for a certain period of time, even if the employer needs time to find replacement staff in a tight labour market, should not be included in the weighing of interests, ex Article 7:658 (3) of the Dutch Civil Code. The clause is intended to protect the company from unfair competition and not to bind employees. If the employee had left without joining the competitor, the ex-employer would have been faced with the same problem.

Conclusion

In short, the employer cannot use the non-competition clause to bind his employees, even if the employer would like to do so due to scarcity on the labour market.

Source: The Supreme Court 17 June 2022, ECLI:NL:HR:2022:894