Introduction
The non-compete clause is a commonly used clause in employment contracts. Employers want to use it to prevent employees from transferring to a competitor or starting their own competing business after leaving. But such a clause is not always legally tenable. This blog explains when a non-competition clause is legally valid, what the law requires, and how judges test whether the clause holds up in practice.
What is a non-compete agreement and why is it included?
A non-compete clause restricts an employee from working at a competing organization or starting a similar business after the end of employment. This is because employers want to protect their business interests, such as customer relationships, confidential information or unique knowledge of products and processes.
While recognizing the employer's interest, a non-compete clause infringes on the freedom of employees to change jobs. Therefore, the law sets clear requirements for the validity and proportionality of such a provision.
Competition clause in a fixed-term contract
In temporary contracts, the scope for a non-competition clause is limited. By law, a non-competition clause in a fixed-term employment contract is in principle not allowed. However, an exception is possible if the employer:
- that motivates in writing and
- a the clause is necessary as there are compelling business or service interests.
A general justification, such as "to protect business-sensitive information," is insufficient. The justification must focus on the specific situation of the employee. If it is missing or not sufficiently substantiated, the clause is null and void and thus legally unenforceable.
Competition clause in permanent contracts
In employment contracts for an indefinite period of time, a non-competition clause is allowed, but there are limits. The employer must be able to demonstrate that the clause is necessary to protect a legitimate business interest. It may not be used as a disguised means to bind employees or limit their mobility.
In addition, the clause must be reasonable and proportionate to its purpose. The duration, geographical scope and nature of the prohibited activities must be proportionate. If the clause is too broad, the court may limit it or annul it entirely.
Not appropriate for all functions
In practice, non-competition clauses are still regularly included in contracts of employees in executive positions, such as store personnel, drivers or warehouse workers, where there is hardly any mention of confidential information or strategic knowledge. In such cases, it is difficult to substantiate why non-competition clauses would be necessary.
Judges look at the actual risks to the employer when evaluating the clause. If there is no obvious reason to restrict the employee from finding new work, the employee's interest will weigh more heavily. The clause may then be annulled in whole or in part.
Conclusion
A non-compete clause can be a useful tool to protect an employer's business interests, but it should not be unreasonably detrimental to employee mobility. Especially with temporary contracts and positions without access to confidential information, the bar is high. Employers would do well to carefully formulate and substantiate non-competition clauses. Employees can seek legal advice when in doubt about the validity to assess their position and see if the clause is legally valid or not.
This blog was written by mr. Stijn Blom, employment lawyer at Arbeidsadvocaat.nl B.V. Stijn has extensive experience in employment law and supports entrepreneurs and employees on a daily basis with a variety of employment law issues. From dismissal cases to drafting watertight contracts and regulations - with his practical and personal approach, he helps employers and employees move forward. Want to know more? Visit Stijn's page.
Arbeidsadvocaat.nl is happy to think with you if you have questions about (competition) clauses. Please feel free to contact us .
April 2025
