Be careful with overly strict wording of a non-compete clause

A non-compete clause that is formulated too strictly or too vaguely often offers less protection than you might think. For example, if the clause only prohibits “direct or indirect participation” in a competitor, your counterparty can in many cases still start working for that competitor as an employee. Furthermore, a clause formulated too strictly can be (partially) struck down or mitigated by the court. If you want a non-compete clause to actually hold up, formulate it carefully: not too narrow, not too broad, and tailored to the interest you truly wish to protect.

What is a non-compete clause?

A non-compete clause stipulates that a contracting party may not be active for or as a competitor during the collaboration, or for an agreed period thereafter . The purpose is to prevent someone from competing with your business using knowledge, contacts, or customer relationships acquired while working for you.

Non-compete clauses occur most frequently in employment contracts, but you will find them just as often in other contracts, such as a freelance agreement, a collaboration agreement, or an acquisition contract.

The difference with a non-compete clause

In a broad sense, a non-compete clause prohibits working for or as a competitor. A non-solicitation clause is more specific: it only prohibits approaching or serving specific clients or business relations. In practice, the two are often combined. Which form is most suitable depends on exactly what you want to protect.

Where does it go wrong: formulated too strictly or too vaguely

The recurring problem is that a non-compete clause is either drafted too narrowly or is cut from a template as standard clause . Consider a provision stating that a freelancer may not a “similar agreement” with a competitor.

Such phrasing immediately raises questions:

• Who actually qualifies as a competitor? A vague concept leaves room for discussion and explanation.
• Which forms of competition are prohibited? A clause that only prohibits “entering into an agreement” or “taking in a participation” often does not cover entering into employment with a competitor.
• How broad is the scope? Geographically, in terms of duration, and in terms of activities: anything that is not clearly defined usually works to the advantage of the person you specifically wanted to engage.

Moreover, a judge does not interpret a clause solely from a linguistic perspective. He also considers what the parties could reasonably expect from each other and the objective scope of the clause. Therefore, what you have not clearly prohibited is quite easily permitted.

Practical example: non-compete clause did not prohibit employment

A striking example is a case involving a self-employed radiologist who had entered into a membership agreement as a member of a Medical Specialist Company (MSB). This agreement contained a non-compete clause: for two years after its expiration, the radiologist was not permitted “direct or indirect participation in a competing healthcare service .

When the membership agreement was terminated, the radiologist wanted to salaried employment at another hospital. His position: the clause only prohibits entering into direct or indirect participation, not working as an employee.

The preliminary relief judge followed that interpretation. Simply put, no agreements had been made regarding competition within an employment relationship. The judge also took other factors into account to determine the objective scope, but arrived at the same conclusion: because the employed radiologist has no patients of their own and therefore does not “take” any patients, the old relationship was not actually being competed against. The radiologist was permitted to enter into employment with the competing hospital.

The core issue: the clause prohibited participation but remained silent on employment. That gap in the wording cost the protection.

Even in the case of a strict clause: the judge can weigh the options

Suppose the clause had explicitly prohibited employment as well. In that case, there would have been less discussion regarding its scope. Nevertheless, that does not automatically mean that the clause applies without reservation. A judge can weigh the interests of the party invoking the clause against the interest of the party whose work and income are restricted.

If that assessment turns out differently, the judge may moderate an overly burdensome clause or (partially) render it inoperative: for example, by shortening the duration, narrowing the scope, or limiting the prohibited activities. In the example of the radiologist, who had no patients of his own, a more strictly worded clause might also have been struck down, although this is never predetermined.

Legal requirements regarding a non-competition clause in employment contracts

to non-competition clauses in employment contracts (laid down in Article 7:653 of the Dutch Civil Code). In any case, take the following into account:

• Written requirement: the clause must be agreed upon in writing with an adult employee. An oral agreement is not valid.
• Temporary contracts: in a fixed-term employment contract, a non-competition clause is in principle only valid if the employer provides written justification for which compelling business or service interests make the clause necessary.
• Judicial review: the judge may annul or mitigate a non-competition clause in whole or in part, for example if the employee is unfairly and severely affected by it.

Please note: the rules regarding non-compete clauses are under discussion. A legislative proposal to modernize non-compete clauses in preparation, which aims to introduce, among other things, a maximum duration, a mandatory scope definition, a broader duty to provide reasons, and possibly an obligation to pay compensation. At the time of writing, this proposal has not yet entered into force. Therefore, always check the current state of legislation when drafting a clause, or have it reviewed by a legal expert.

This is how you draft a non-compete clause that holds up

A workable non-compete clause is concrete and proportionate. Pay attention to the following when drafting:

1. Name all relevant forms of competition. Not only “entering into an agreement” or “participating”, but also working as an employee, as a freelancer, as a partner, or through one’s own business.
2. Define who or what a competitor is. Describe the activities, the market, or the type of company so that no discussion arises.
3. Limit the scope reasonably. Keep the duration, geographic area, and activities proportionate to the interest you are protecting. A clause that is too broad runs the risk of being moderated.
4. Attach a workable sanction to it. Many clauses link a penalty clause to a violation. Formulate this clearly, because even an unclear or excessive penalty clause can be mitigated by the court.
5. Comply with the formal requirements. In employment relationships, ensure a written and (for temporary contracts) substantiated clause.
6. Tailor it to the relationship. A clause for an employee, a self-employed professional, or a selling entrepreneur requires a different approach in each case.

Frequently asked questions about the non-compete clause

Is a non-compete clause always valid?

No. Validity depends on the wording, the context, and (in the case of employment contracts) on statutory requirements such as the written form requirement. Moreover, a judge may moderate a clause or annul it in whole or in part if it proves to be too burdensome.

Am I allowed to work for a competitor as an employee despite a non-compete clause?

That depends on the exact wording. If the clause only prohibits “participation” or “entering into an agreement,” then employment sometimes falls outside its scope, as in the case discussed. If the clause explicitly prohibits employment as well, the situation is different. Always have the wording reviewed before taking any action.

Can a judge modify a non-compete clause?

Yes. If a clause is too broad or too burdensome, the judge can moderate it, for example by shortening the duration or narrowing the scope, or render it wholly or partially inoperative.

How long may a non-compete clause last?

The law currently does not specify a fixed maximum duration; in practice, terms of six months to two years are often applied. The longer and broader the clause, the greater the chance that a judge will moderate it. A maximum duration is proposed in the announced legislative proposal for modernization, but this is not yet in effect. Therefore, always keep the duration proportionate to the interest you are protecting and check current legislation.

What happens if someone violates a non-compete clause?

Often, a penalty clause is linked to the agreement, ensuring that a breach results in an agreed-upon fine. Additionally, the injured party may demand performance or claim damages. Whether a fine is actually due depends on the wording and may be mitigated by the court. Unsure about your position? Our legal experts can assist you with legal support regarding a (potential) breach.

Does a non-compete clause also apply to self-employed professionals and freelancers?

Yes, parties can also include a non-compete clause in a freelance or collaboration agreement. The strict statutory requirements that apply specifically to employment contracts do not automatically apply there, but here too the court assesses reasonableness and an overly broad clause may be limited.

What is the difference between a non-compete clause and a non-solicitation clause?

A non-compete clause broadly prohibits working for or as a competitor. A non-solicitation clause only prohibits approaching or serving specific clients or business relations. Both are often combined.

Have a custom non-compete clause drafted

A non-compete clause is only valuable if it holds up when it matters. Are you unsure whether your clause offers sufficient protection, or do you want to add one to a new agreement? Our legal experts will draft a custom non-compete clause for you or review an existing one. If you require broader advice regarding employment or contractual agreements, please check our employment law or contract law expertise .

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