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Not only relevant to non-competition clauses
The proposed amendments do not apply solely to traditional non-competition clauses. Article 7:653 of the Dutch Civil Code also applies to non-solicitation clauses, and the legislator confirms that this will remain the case under the new regime. Furthermore, according to the legislator, anti-poaching clauses may also fall within the scope of Article 7:653 of the Dutch Civil Code, insofar as they restrict the employee’s freedom to choose their employment.
The latter point is particularly striking. An anti-poaching clause is generally intended to prevent a departing employee from approaching colleagues to persuade them to join a new employer. In principle, however, such a clause does not restrict an employee’s freedom to choose to work elsewhere. It remains unclear, in our view, when an anti-poaching clause constitutes a restriction on the freedom to choose one’s employment and thus falls under Article 7:653 of the Dutch Civil Code.
Even following the criticism raised during the online consultation, the legislator maintains that non-solicitation clauses may fall within the scope of Article 7:653 of the Dutch Civil Code. According to the legislator, a separate regime would be too complex due to the many hybrid forms that occur in practice.
Maximum of twelve months
One of the most striking changes is the introduction of a statutory maximum duration. Whereas the current law does not specify a maximum duration, the draft legislation stipulates that a non-competition clause is only valid if it explicitly states how long the clause applies. That duration may not exceed twelve months. A non-competition clause without an end date, or with a duration of more than twelve months, is null and void.
Mandatory geographical scope
In addition to a maximum duration, the legislative proposal introduces a new validity requirement: geographical scope. The non-competition clause must clearly specify the area to which the restriction applies. In the absence of a geographical scope, the clause is null and void. Unlike the online consultation proposal, the legislative proposal submitted to the Council of State does not require a justification for the geographical scope. The mandatory geographical scope is intended to prevent employees from being restricted beyond what is necessary to protect the employer’s interests.
No general obligation to state reasons for permanent contracts
An important departure from the 2024 internet consultation proposal is the reasoning requirement. In the consultation version, every employer, even in the case of a permanent employment contract, was required to state the compelling business or service interest justifying a non-competition clause. This provision attracted considerable criticism from the business community. Employers highlighted, amongst other things, the administrative burden and the potential legal uncertainty this would cause. The legislator has taken this criticism into account. In the current legislative proposal, the general obligation to state reasons for permanent employment contracts has been removed. For fixed-term employment contracts, however, the existing obligation to state reasons remains in place.
Compensation amounting to 50% of the monthly salary
The most widely discussed change concerns the introduction of mandatory compensation. If an employer decides to hold an employee to the non-competition clause, they are, in principle, obliged to pay compensation amounting to 50% of the monthly salary for each month in which the clause is enforced. If the employer enforces the clause against the employee for only part of the agreed period, the compensation is payable only for that period. The employer must pay the full compensation no later than one month after the end of the employment contract. If the employer fails to pay on time or in full, they remain liable for the compensation but can no longer derive any rights from the non-competition clause.
This compensation scheme was already included in the draft proposal for public consultation, but has been developed in considerably greater detail in the current legislative proposal. For example, the legislative proposal contains rules on, amongst other things:
- the calculation of compensation for partial months;
- the concurrence of multiple restrictive clauses, such as a non-competition clause and a non-solicitation clause; and
- the possibility for the court to reduce the compensation where the non-competition clause is declared wholly or partially void.
The employer is not required to pay the compensation if the termination or non-renewal of the employment agreement results from the employee’s seriously culpable act or omission. The employer is likewise not required to pay the compensation if the employee fails to comply with the terms of the non-compete clause. According to the Explanatory Memorandum, any compensation already paid in such circumstances is considered an undue payment and must be repaid in full by the employee.
The employer must actively and promptly choose to enforce the clause
The employer must actively and in good time invoke the non-competition clause in order to derive rights from it. The employer must notify the employee in writing that the non-competition clause is being enforced and for what period. As a general rule, the employer must give this notice no later than one month before the end of the employment contract. Depending on the manner in which the employment contract ends, a different time limit may apply, for example in the case of summary dismissal. If the employer does not invoke the clause in good time, they cannot derive any rights from it. With this amendment, the legislator aims to prevent employees from being left in a state of uncertainty for an extended period as to whether an employer will actually invoke the non-competition clause.
Judicial review remains in place
Despite the introduction of new validity requirements and statutory compensation, the courts continue to play an important role. Even under the new system, a court may set aside a non-competition clause in whole or in part if the employee is unfairly disadvantaged as a result, relative to the employer’s interest to be protected. Furthermore, for fixed-term employment contracts, the court may still assess whether there is indeed a compelling business or service interest.
Transitional provisions
According to the proposed transitional regime, existing non-compete clauses will remain valid without needing to meet all of the new validity requirements. However, where an employer seeks to enforce an existing clause after the new legislation enters into force, the enforcement of that clause will generally be governed by the new rules. The employer must then notify the employee in writing, and in a timely manner, that it intends to hold the employee to the non-compete clause and specify the period during which the clause will apply, up to a maximum of twelve months. In addition, the employer must pay the statutory compensation. If, at the time the new legislation enters into force, the employer can no longer invoke the clause in accordance with the new rules because the restriction period will commence within less than one month or is already running, the current (existing) legal regime will continue to apply.
Conclusion
With the legislative proposal on the modernisation of non-competition clauses, the legislator is taking an important step towards a more strictly regulated system. The proposed maximum duration, mandatory geographical scope, active and timely decision to enforce the clause, and the statutory compensation are intended to ensure that non-competition clauses are only used where there is a genuine need for them. At the same time, the employer retains the ability to protect commercially sensitive information, know-how and customer relationships. The legislator aims to table the legislative proposal in the House of Representatives by the end of 2026. It remains to be seen in the coming period to what extent the Council of State and subsequently the legislature will make further amendments to the proposal, but it is clear that non-competition clauses as we currently know them may undergo significant changes.
