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Many employees have a non-compete agreement, and many employers come into contact with potential employees who have a non-compete agreement. The question that then arises is, can the employee join a new company? Or in other words, is the non-competition clause legally valid, can the current employer successfully invoke the clause, or can the non-competition clause perhaps be (partially) voided? These questions and more are addressed in this article. We also briefly discuss the judgment of the Court of Appeal of Amsterdam of 16 February 2021.
Legally valid non-competition clause?
A non-competition clause protects employers’ business assets and can prevent damage by preventing an employee or former employee from joining a competitor. Suppose that the employer has legally agreed to a non-competition clause with an employee, are the employee and potential new employer empty-handed?
No, in some situations a validly agreed non-competition clause may nevertheless lose its validity or the employee may challenge a valid non-competition clause by requesting its annulment.
Annulment of non-competition clause
An employee may apply to the subdistrict court for the whole or partial annulment (or suspension in summary proceedings) of the non-competition clause if the employee is unfairly disadvantaged. Whether the employee has been unfairly disadvantaged must be determined by weighing up the interests. The interests of the employer may be (1) fear of disadvantage, (2) degree of competition and (3) investments made in the employee. Interests of employee may be (1) improvement of position, (2) bondage to industry and (3) freedom of employment choice.
The annulment or suspension of a non-competition agreement can already be requested when the employee is still employed by his current employer. This prevents the employee from forfeiting any fines when joining the new employer. Whole or partial annulment may also be raised during dismissal proceedings.
Judgment on balancing interests of unfair disadvantage
The previously discussed balancing of interests was also an issue in the appeal before the Amsterdam Court of Appeal. The employee felt he was unfairly disadvantaged in relation to the interests of the employer. In the judgment, the court first emphasized that the mere fact that the employee goes to work for the competitor does not mean that the employer’s business is affected. We only speak of an impairment of the business activities if the new employer can compete because the employee brings in essential information about products, services and/or work processes, or that, because of customer loyalty to the employee in question, customers switch.
In short, the employer can protect its business assets – being know-how and goodwill – but the employee cannot be tied to the business. That is not what a non-competition clause is for. In this judgment, the employer could not demonstrate that the employee possessed competitively sensitive information and there was insufficient evidence of investment in the employee. On the contrary, employee had an improvement in position, so employee was allowed to join the new employer.
Moderation of non-competition clause
The court can also moderate a non-competition clause in terms of scope (duration, geographical area and activities/relationships). This is also assessed on the basis of the aforementioned balancing of interests.
Legally valid non-competition clause lapses due to change in employment relationship?
A legally valid non-competition clause may cease to apply if the employment relationship changes. The change must be (1) unforeseeable and far-reaching and (2) the change must hinder the employee in finding a new job. This might include a major job change or organisational change which would make the non-competition clause ‘considerably more burdensome’.
Settlement agreement upon leaving the company
In some situations, it may be worthwhile for the employer and employee to make agreements about the non-competition clause when they leave the company. These agreements can be set out in a settlement agreement. For example, the parties could agree that the non-competition clause should lapse in whole or in part, or that it should be converted into a non-solicitation or anti-solicitation clause. The employer may also give the employee permission to join the competitor, possibly subject to certain conditions.
Lawyers specialized in special clauses
The employment lawyers at LVH Advocaten in Rotterdam are regularly confronted with questions on special terms such as non-competition and non-solicitation clauses. If you have any questions about this article or about special clauses, please feel free to contact Lisa Kloot and Peter Verheijden of LVH Advocaten.