Competition and relationship clause: when is it really valid?
A competition or relationship clause may have significant consequences for both employers and employees. Employers desire to safeguard their business interests while employees are often constrained in their freedom to accept a new job. But when is a competition or relationship clause actually valid? And what can you do if you disagree with it?
The labor law attorneys of Arslan Advocaten explain what the rules are, how a court views a clause, and what you can do if there is a conflict.
What is a competition clause?
A competition clause prohibits an employee from working for a competitor or starting their own competing business after their employment contract ends. The aim is to prevent the transfer of company-sensitive information, customers, and know-how to competitors.
This clause is frequently combined with other provisions such as an immediate dismissal clause or confidentiality agreement to provide additional assurance for the employer.
Legal basis
The legal basis for the competition clause can be found in article 7:653 of the Dutch Civil Code. It states, among other things, that a competition clause is only valid if it has been agreed upon in writing with an adult employee. A competition clause may only be included in a temporary contract if there is a pivotal company interest, which must be justified in writing.
When is a competition clause valid?
Not every competition clause is automatically valid. A court can fully or partially void the clause if it is unfair or does not meet the legal requirements. The main conditions are outlined below.
1. Agreed upon in writing
The clause must be written down, either in the employment agreement itself or in a signed appendix. Verbal agreements are not valid. Often this is combined with a settlement agreement at termination of employment.
2. Only for adult employees
An employee must be at least 18 years old when signing the clause. A competition clause agreed with a minor is void.
3. For temporary contracts: pivotal interest required
A competition clause is only permitted in a fixed-term employment agreement if the employer can demonstrate that there is a pivotal company interest. For example, because the employee has access to confidential company information. Without a clear justification, the clause is void.
4. Reasonable duration and geographical limitation
A competition clause must be reasonable in terms of duration and scope. Usually, a period of 6 to 12 months and a defined geographical area (for example, ‘Netherlands’ or ‘Randstad’) apply. A court can moderate an overly broad limitation.
5. Balancing of interests by the court
If an employee claims that the clause unfairly restricts them from finding a new job, a court may void or limit the clause. The court will balance the interests of the employer (protection of knowledge and customers) against those of the employee (freedom of employment choice). In some cases, this can lead to a transition compensation or additional damage compensation.
What is a relationship clause?
A relationship clause prohibits an employee from maintaining contact with (former) clients or relations of the employer after their employment terminates. This clause also falls under article 7:653 of the Dutch Civil Code and is tested by the court in the same way as a competition clause.
Examples of a relationship clause
- The employee is prohibited from approaching business relations of the employer within 12 months after the termination of the employment contract.
- The employee may not accept assignments from customers who have been customers of the employer in the last 2 years.
Therefore, a relationship clause can also be unreasonable if it is too broadly formulated or if it is no longer necessary to protect the interests of the employer.
Abolition or moderation by the court
An employee who is hindered by a competition or relationship clause can request the court to fully or partially void the clause. The court will consider factors such as:
- the employee’s role and position;
- the duration and scope of the clause;
- the nature of the new role;
- the financial consequences for both parties.
In some cases, the court may determine that the clause still applies, but that the employer must pay the employee a compensation for this. This damage can sometimes be classified under salary damage or loss of income.
What can you do in a dispute over a competition clause?
Whether you are an employer or an employee: it is wise to obtain legal advice quickly in a dispute over a competition clause. Often, a lawyer can help to moderate, suspend, or enforce the clause.
For employees
Always have the clause checked before you switch to a new job. A violation may lead to substantial fines. A lawyer can also negotiate with your (former) employer about exemption or buyout of the clause.
For employers
If you wish to uphold a competition clause, ensure proper evidence of damage or business interests. It is also crucial that the clause is not formulated too broadly or too generally. Our labor law specialists can assist in drafting legally waterproof clauses.
Arslan Advocaten assists with competition clauses
The labor law specialists of Arslan Advocaten have extensive experience with disputes over competition and relationship clauses. We advise both employees and employers about the validity, interpretation, and implementation of these clauses. We also represent clients in procedures before the subdistrict court.
Frequently asked questions about competition and relationship clauses
Can a competition clause simply be abolished?
Yes, if the court rules that the clause is unreasonable or does not meet the legal requirements, it may be fully or partially abolished.
May an employer include a competition clause in a temporary contract?
Only if a pivotal company interest exists that is clearly substantiated in writing. Without reasoning, the clause is void.
What is the difference between a competition clause and a relationship clause?
A competition clause restricts the employee from working for competitors, while a relationship clause prohibits contact with (former) customers of the employer.
What happens if I violate the clause?
The employer can demand a contractual fine or a prohibition through the court. Always seek legal advice before making a switch.
Contact Arslan Advocaten
Do you have a dispute about a competition clause or want to know if your clause is valid? Get in contact with Arslan Advocaten for immediate legal advice. Our experienced labor law attorneys represent both employers and employees and ensure a practical and strategic approach.
