Netherlands: Case Law Shows the Justification for a Non-Competition Clause must be Tailored to Individual Employee

In principle, the inclusion of a non-competition clause and a relationship clause in a fixed-term employment contract is not allowed unless the employer has compelling business reasons for doing so and explicitly justifies those reasons in the contract. However, it’s common to find employers inserting a generic clause into all contracts, which was recently challenged by the Amsterdam District Court. In this instance, both the relationship clause and the non-competition clause were suspended by the court due to the employer’s indiscriminate application.

From the legislative history, it is clear that the intention of the legislator is that employers make a specific assessment in each individual case regarding the inclusion of a non-competition and non-solicitation clause and clearly justify why this specific clause is necessary for the employee in question.

In this particular case, both the relationship clause and the non-competition clause were suspended by the court due to the employer’s failure to provide individualized justifications.
The court criticized the indiscriminate use of the same justification for the non-competition clause across all employees, from HR personnel to sales traders.

According to the court’s ruling, this lack of specificity fails to meet the legal standard set forth in the legislative history, which emphasizes the necessity for a tailored approach to non-competition clauses. It’s crucial for employers to understand that non-competition clauses should primarily serve to protect sensitive business information, rather than restrict employee mobility.

Although this ruling was a summary proceeding and may be followed up, be warned that, as an employer, you must ensure that the justification of the non-competition clause is directly related to the unique knowledge and skills each employee has acquired in their job. Failure to do so could result in the invalidity of the non-competition or relationship clause in future legal proceedings.

Key Action Points for Human Resources and In-House Counsel:

• Non-competition and relationship clauses in fixed-term contracts require individualized justifications.

• Using generic justifications for non-competition or relationship clauses increases the risk of suspension of those clauses during legal proceedings.
• Employers should tailor motivations for non-competition and relationship clauses to reflect specific employee roles and acquired knowledge.