The House of Representatives intends to restructure the non-compete clause to strike a balance between protecting employers’ competitive interests and preventing unnecessary restrictions on employees.
Throughout 2024, several changes in employment law will come into effect. Notably, as mentioned in our December 2023 blog post, the non-compete clause may undergo restructuring. The government aims to amend and tighten the legislation surrounding non-compete clauses to facilitate easier labour market mobility. This article discusses the current workings of the non-compete clause, the forthcoming changes in 2024, and the status of the legislative proposal to implement these changes.
Current rules on non-compete clauses
A non-compete clause prohibits an employee from engaging in similar work with a similar company, either as an employee or an entrepreneur, after the termination of its employment contract. Employers utilize this clause to safeguard their business interests, such as proprietary knowledge and customer bases. However, a non-competition clause should only be included and invoked when it is truly important to protect business interests. If there is no need for this, then the free choice of employment and job mobility should be paramount.
Currently, a non-compete clause must be agreed upon in writing with adult employees. The basic principle is that a non-competition clause is only included in an employment contract for an indefinite period. It is also possible to agree to a non-competition clause in a fixed-term employment contract. However, stricter requirements apply: the employer must motivate in writing that due to compelling business or service interests it is necessary to include the clause in respect of specifically this employee in this position.
Restructuring of non-compete clauses
In response to a motion that was raised by Members of Parliament Beukering-Huijbregts and Gijs van Dijk, Minister van Gennip addressed the restructuring of non-compete clauses in a parliamentary letter in 2023. Now a days, too many employees are unfairly restricted by a non-compete clause in their employment contract. In practice, there is a lot of improper use of the non-compete clause because the clause is included as a standard clause and not as a protection of business interests.
Minister van Gennip’s proposed changes include:
- Limitation in duration of the clause to a maximum of one year;
- The geographical scope must be included, specified and justified;
- The employer must also justify the “compelling business reason” in employment contracts for an indefinite period;
- In principle, the employer will have to pay a compensation to the employee if the clause is invoked. This compensation amounts to 50% of the last earned monthly salary for each month that the non-compete clause is invoked.
This legislative proposal has been open for public internet consultation (only in Dutch) since March 4th and will remain open until April 15th, 2024.
Additionally, on February 13th, 2024, a motion was passed urging the government to introduce another change. This fifth element stipulates a threshold: a non-compete clause will be void if an employee earns less than 1.5 times the median income for full-time employment (approximately EUR 66,000 gross per year entailing periodic salary + vacation allowance + fixed benefits).
Conclusion:
Anticipate legislative changes regarding non-compete clauses, which will further restrict its usage. It is likely that non-compete clauses will become more specific, potentially necessitating a review of existing agreements with employees.
