Why a standard non-compete clause is not a good idea

A standard non-compete clause from a template contract or found on the internet is usually not a good idea: judges are increasingly setting aside such generally formulated clauses, leaving you as an employer empty-handed. A non-compete clause is a serious instrument that restricts an employee's free choice of employment. If it is too crude, too broad, or too general, it often does not hold up in court. A tailor-made clause that aligns with your specific business interests and position offers much more protection. In this article, you will read when a non-compete clause holds up, why standard clauses fail, and how to handle it smartly.

What is a non-compete clause?

A non-compete clause is an agreement in an employment contract that restricts an employee from working for or starting a competing company after the termination of employment. The purpose is to protect commercially sensitive knowledge, customer relationships, and know-how. A related and often more targeted instrument is the non-solicitation clause, which specifically prohibits approaching existing customers or business relations.

Because a non-compete clause infringes upon the fundamental right to freedom of choice of employment, the law imposes conditions on it and judges review it critically. This falls within employment law, where the interests of employer and employee are carefully weighed against each other. A clause adopted indiscriminately from a model contract rarely aligns well with the actual situation and is therefore vulnerable.

When is a non-compete clause valid?

Whether a non-compete clause holds up depends heavily on the type of contract and the way it is drafted. Two situations are important:

• Employment contract for an indefinite period. In principle, a non-competition clause is permitted in this case, provided it has been agreed in writing with an adult employee. Nevertheless, a judge may moderate the clause or annul it in whole or in part if it unfairly disadvantages the employee in relation to the employer's interest to be protected.
• Fixed-term employment contract. A stricter rule applies here: a non-competition clause is only permitted if the employer explains in writing and with reasons which compelling business or service interests make the clause necessary. If this justification is missing or too general, the clause is invalid.

The core message is therefore: documenting it in writing is not enough. Especially with temporary contracts, you must provide concrete and specific substantiation as to why this particular employee in this position poses a risk to your company.

Why a standard non-compete clause fails in court

In recent years, case law has become more critical of standard non-competition clauses. In several cases before Dutch sub-district courts, a clause was set aside because it was too general, one-sided, or insufficiently substantiated. Three recurring reasons stand out.

1. The justification remains stuck in generalities

In a case involving a specialized manufacturing company and a former sales manager, the temporary contract contained a non-compete clause. The employer stated that the employee had access to business relations, competitively sensitive information, and know-how, and that employment with a competitor would cause serious damage. Nevertheless, the subdistrict court judge did not agree with this.

The problem: the justification remained stuck in generalities that apply to just about every employer and employee. Moreover, the clause would have been imposed on all sales managers, causing it to lose its special character. A genuine balancing of interests was also lacking, because it had been imposed unilaterally. The clause was withdrawn.

2. There must be genuine competition

In a second situation, it concerned a contract for an indefinite period, under which a non-compete clause is permitted even without extensive justification. Nevertheless, the subdistrict court ruled that the former employer can only invoke it in the event of a justified fear of competition.

The mere fact that a former employee joins a competitor is insufficient. It must be plausible that the employee can actually compete with the former employer using acquired knowledge and contacts. If that fear was insufficiently substantiated, the claim was rejected.

3. The employer's interest does not carry enough weight

In a third case, again involving a permanent contract, the judge in summary proceedings weighed the interests of the company against the employee's interest in freedom of choice of employment. The latter outweighed the other: it concerned a school leaver who had just completed his internal training, had few opportunities elsewhere, and could hardly have gathered any sensitive business information. The judge ruled that there had been disproportionate disadvantage and dismissed the claim.

The common thread: the more general, one-sided, and standard the clause, the greater the chance that a judge will set it aside.

The risks of a standard clause for you as an entrepreneur

A non-compete clause pulled straight out of the book feels like protection, but in practice actually poses risks:

• False sense of security. You think you are protected, but the clause can collapse at the decisive moment.
• No recourse when switching. If a key employee leaves for a competitor, you are left empty-handed with an invalid clause.
• Litigation costs and loss of time. Proceedings concerning a shaky clause cost money and energy, with an uncertain outcome.
• Invalidity of temporary contracts. If the required justification is missing, the clause in a fixed-term contract is simply void.

How do you draft a strong non-compete clause?

A non-compete clause that holds up is always custom-made. Pay attention to the following points when drafting:

1. Make it function-specific. Describe concretely which knowledge, relationships, or know-how pertains to this specific position, rather than using a general formulation for everyone.
2. Provide written justification for temporary contracts. Explicitly and concretely record the compelling business interests in or attached to the agreement.
3. Limit in time and area. A restriction that is proportionate to the interest in terms of duration and region is more likely to hold up than an unlimited ban.
4. Consider a non-solicitation clause. Often, a more targeted non-solicitation clause is more effective and proportionate than a broad non-compete clause.
5. Reconsider the necessity. Ask yourself whether the clause is truly necessary. Sometimes it primarily serves a deterrent effect, and the risk of an invalid clause does not outweigh the benefit.

If you are unsure about the wording, have the employment contract reviewed by a specialist. A well-drafted non-compete clause tailored to your situation offers much more certainty than standard text.

The law is changing: pay attention to the legislative proposal for the modernization of non-compete clauses

There is a legislative proposal to modernize non-compete clauses. At the time of writing, this has not yet entered into force and the final content may still change, but the direction is clear: stricter requirements for employers. The plans mention, among other things:

• a statutory limit on the maximum duration of the clause;
• the obligation to include the geographical scope in the clause;
• a duty to provide reasons for substantial business interests, even in the case of permanent contracts;
• the obligation to invoke the clause in a timely and explicit manner before the end of the employment;
• mandatory compensation to the employee for the period that the clause restricts him.

The precise percentages, timeframes, and effective date have not yet been finalized and may change during the parliamentary proceedings. For you as an entrepreneur, the message is already clear: standard and unmotivated clauses are becoming increasingly vulnerable. Those who opt for function-specific customization now will be better prepared later. Therefore, have existing and new clauses reviewed in a timely manner.

Frequently asked questions about the non-compete clause

Is a non-compete clause without justification always invalid?

For a fixed-term contract, a written justification of the compelling business interests is required; if this is lacking, the clause is in principle invalid. For an indefinite-term contract, such justification is not legally required, but the court may still moderate or annul the clause if it proves to be unreasonable.

How long may a non-compete clause last?

The current law does not specify a fixed maximum duration. In practice, a period of around one year is often applied, but whether this is sustainable depends on the business interest, the position, and the region. The broader the limitation, the more critically a judge will examine it. Please note: a statutory maximum duration is proposed in the legislative proposal for the modernization of non-compete clauses.

Can I use a standard non-compete clause from the internet?

That is possible, but it is risky. A general model text rarely aligns with your specific situation and is therefore more likely to be overruled by the court. Tailor-made solutions offer more protection.

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

A non-compete clause broadly prohibits working for or starting a competitor. A non-solicitation clause is more specific and only prohibits approaching existing customers or business relations. A non-solicitation clause is often more proportionate and is therefore easier to uphold.

Does an existing non-compete clause still apply if the law changes?

It is expected that existing, previously agreed clauses will in principle remain legally valid, but that new rules may partially apply to them. Since the final text of the legislation has not yet been established, it is advisable to have your clauses reviewed as soon as more clarity is available.

Have your custom non-compete clause drafted or reviewed

Do you want to be sure that your clause holds up? MKB Juristen has extensive experience in drafting and reviewing employment contracts and the associated clauses. If you encounter a dispute, our employment law you move forward. Schedule a no-obligation intake and we will check together whether your non-compete clause is doing what it is supposed to do.