As of January 1 2015 for the non-competition clause a distinction is made between employment contracts for an definite period and those for an indefinite period:
- The non-competition clause can only be included in an employment contract for an indefinite period;
- An exception is made for employment contracts for a definite period, if the explanation in writing by the employer, which shall be included in the clause, states the necessity of the clause due to compelling business or services interests.
An employer shall have to make very clear – in this explanation – what this compelling interest is. Although case law shall have to determine exactly how this works, it is likely to assume that this will not always be the case, because every employer is dealing with risks of competition. There shall have to be special circumstances, such as, for example, if the employee has very specific and valuable technological, product or customer knowledge.
If no explanation is included, the non-competition clause shall not apply at all. If is the employee is of the opinion that the employer has insufficient reasons to maintain the applicability of the clause, the employee can attempt (in court or otherwise) to have the clause annulled.
Please note: the non-competition clause in the employment contract is null and void if the termination or nonrenewal of the employment is due to serious attributable acts or negligence by the employer.
Legislation prior to 1 January 2015
Prior to 1 January 2015, there were no restrictions in entering into a non-competition clause. The condition was that the non-competition clause is recorded in writing. Employers cannot derive rights from the non-competition clause if they are liable to pay compensation for termination of the employment contract. This applies for example if an employer terminates the employment contract without due observance of the term of notice.
The change is in effect on 1 January 2015. The new legislation applies to employment contracts entered into on or after 1 January 2015. There is only an exception if there is a collective labour agreement under transitional conditions. In those cases the changes concerning the non-competition clause will in any case apply from 1 January 2016.
- A clause which forbids having businessrelations, is also regarded as a non competition clause and should meet the same conditions.
- If this concerns employment contracts for a definite period, the right substantiation (non-competition clause is necessary due to compelling business or services interests) is very important.
- We suggest that the substantiation of a non-competition clause in an employment contract for an indefinite period is also included. As it is to be expected that the courts shall attempt, when weighing the interests in a non-competition clause, for employment contracts for an indefinite period they shall want to match this to the strict requirement to substantiate an argument in employment contracts for a definite period.
- A non completion clause in an employment agreement for an definite period that does not meet the legal requirements, will not become valid if the employment agreement is prolonged for an indefinite period of time. The clause needs explicitly to be agreed upon in writing.