Definition and Types of Restrictive Covenants
A restrictive covenant is a clause included in the (signed) employment contract that prohibits the employee from engaging in certain activities for a specified period of time. The clauses must be written down in a language the employee understands. Examples of restrictive covenants are:
- a non-compete clause;
- a non-solicitation clause;
- a secrecy clause.
Types of Restrictive Covenants
In principle, employing a non-competition clause in a fixed-term employment contract is prohibited, unless the employer has a substantial business interest in including such a clause (which must be substantiated in the employment contract).
Non-competition clauses, effective for a certain scope of activities, a certain geographical area and/or for a certain number of years, must be agreed upon in writing. Furthermore, the employee must be at least 18 years old at the time of signature.
The restriction must be limited to what is reasonably necessary to protect the employer’s business interests. Typically, a duration of one year is considered reasonable. Limitations as to territory and the nature of activities depends on the branch in which the employer operates and the position of the employee.
The employer can enforce the non-competition clause in Court and claim damages from the employee. In practice, a penalty clause is usually agreed upon between the parties on the basis of which the employee has to pay an agreed amount to the employer, if the employee breaches the non-competition clause. The employer might also take the new employer to Court as the new employer might act unlawfully by hiring an employee while knowing that the employee breached the non-competition clause with the previous employer.
Enforcement of the non-competition clause can also be mitigated or denied by a Court. A non- competition clause may become (in whole or partly) invalid if the responsibilities ensuing from the employee’s position are substantially amended. If the non-compete clause prevents the employee from being employed elsewhere, the Court may order that the employer has to compensate the employee during the period in which the employer holds the employee to the non-compete clause. The employer can unilaterally release the employee from his/her obligations under the non-compete clause in which case the employer will no longer be required to pay any compensation.
Employment contracts can also contain a non-solicitation clause, which stipulates that the employee is not allowed to solicit his/her employer’s customers or employees during or after his/her employment. The clause has to be in a language the employee understands. There are no other requirements as to form.
The employer can enforce the non-solicitation clause in Court and claim damages from the employee. In practice, a penalty clause is usually agreed upon between the parties on the basis of which the employee has to pay an agreed amount to the employer, if the employee breaches the non-solicitation clause. Enforcement of the non-solicitation clause can be mitigated or denied by a Court.