Netherlands – Draft reforms to the non-competition clause

What’s new?

A bill regarding reforms to non-competition clauses has recently been under consultation in the Netherlands. If the bill is passed, the proposed changes could significantly impact employers’ use of the non-competition clause (the “clause”), limiting the scope in which it may be inserted and invoked in employment contracts.

What are the main proposed changes?

  1. Duration – A maximum duration of twelve months post-termination will apply and therefore any clause entered into for more than twelve months would be considered void.
  2. Geographical scope – The geographical scope of the clause and motivation must be specified in the clause (i.e. the area or radius to which it applies). In the absence of specifying the geographical scope, the clause would be considered null and void.
  3. Substantial business interest – The clause will need to specify the employer’s motivation for entering the clause, specifically the substantial business interest. This currently applies to fixed-term contracts, however under the bill this is to apply to indefinite-term contacts. In the absence of this, the clause would be considered void.
  4. Compensation for invoking the clause – Employers will be required to pay compensation to an employee when invoking the clause, amounting to at least 50% of their last earned gross monthly salary, for each month the clause is invoked. The bill also states that the parties may agree on a higher, but not a lower, compensation. The court has the power to nullify a clause where a lower compensation has been agreed.
  5. Notice procedure for invoking the clause – Employers will be required to inform an employee timely in writing that they will hold the employee to the clause, and the length of time. “Timely” in this context means no later than one month before the employment contract ends. If the employer fails to do this, the employee will not be bound by the clause.
  6. Nullification of the clause – Employees may be able to apply to the court for whole or partial nullification of the clause where is it not necessary due to substantial business interest or where the employee is unfairly disadvantaged.

So, what should employers do now?

Employers should monitor the bill and prepare themselves should any of the above proposals be approved. Note that if the bill is passed, the proposals will only apply to new non-competition clauses entered into after the bill comes into force (any existing non-competition clauses validly entered into will remain effective). If you need any support with this, or would like any further information, please get in touch with a member of the MDR ONE team.

How can we help you?

How can we help