Non-compete clauses are frequently included in agreements. For instance, a publisher might collaborate with a freelance editor and subsequently prohibit the freelancer from performing the same activities for another publisher. This prevents a skilled editor from strengthening the competition. Or at least, that is the idea, because in practice, there are often shortcomings in non-compete clauses. And this can sometimes have catastrophic consequences.
What is a non-compete clause?
A non-compete clause stipulates that the contracting party may not work for a competitor. Non-compete clauses are common in employment contracts but are also included in other agreements, such as freelance agreements.
The problem is that non-compete clauses are often limited to the contract itself or that a standard non-compete clause is included. For example, it is stipulated that the freelancer may not a “similar agreement” with a Dutch competitor. Well, that is, of course, asking for trouble. Such a non-compete clause is far too vague, because on the one hand, the question arises as to what constitutes a competitor, and on the other hand, it allows for work for a competitor in a different capacity. The example below demonstrates this.
A non-compete clause does not prohibit employment
In a recent case, a self-employed radiologist had entered into a membership agreement as a member of the MSB. This agreement included a non-compete clause. This clause stipulated that, for the two years following the expiration of the membership agreement, the radiologist “direct or indirect participation in a competing healthcare service .” Ultimately, the membership agreement was terminated by the MSB, and the radiologist wished to enter into salaried employment at another hospital. According to the radiologist, this was permissible, and the non-compete clause does not prohibit him from entering into salaried employment at all, but merely prohibits entering into any (in)direct participation.
The preliminary relief judge now appears to confirm this as well. The preliminary relief judge also indicates that no agreements were made anywhere regarding competition in an employment relationship. However, the preliminary relief judge keeps a backup option open and states that other factors must also be taken into account to determine the objective scope of the non-compete clause . Based on the NZa regulations, however, the preliminary relief judge reaches the same conclusion: because the employed radiologist has no patients of their own and therefore cannot bring any patients with them, the radiologist does not cause competition to the hospital. The radiologist is therefore granted permission to enter into employment with the competing hospital.
The judge can also weigh the interests
Had the previous non-compete clause expressly prohibited an employment relationship, there would have been no need for discussion, and the radiologist would, in principle, not have been permitted to enter into employment with the other hospital. However, the preliminary relief judge could still have made a balancing of interests . In doing so, the judge takes into account the interests of the two contracting parties. Given the fact that the radiologist has no patients of his own, however, the judge could have reached the same conclusion even then. But that is, of course, not a foregone conclusion…
The importance of a good non-compete clause
The case described above demonstrates two things. Firstly, it is important not to formulate the non-compete clause too strictly. After all, there are various ways in which the contracting party can strengthen the competition. Consider, for instance, a role as a freelancer, employment, becoming a partner, or establishing a competing business themselves. Furthermore, one cannot haphazardly draft severe non-compete clauses. A balancing of interests must always be made. Otherwise, the judge may (partially) strike down the non-compete clause. And that, of course, cannot be the intention.
Do you want to add a non-compete clause to the agreement? Then discuss it with our legal experts first. They will draft a non-compete clause. This way, the non-compete clause does not have to remain a dead letter.
