Changes to rules on use of non-compete restraints in employment

At a glance

• The Dutch government is consulting on reforms to the use of non-compete clauses by employers.
• Research shows that these clauses are often included as standard in employment contracts even where this is not justifiable or necessary.
• The proposed changes would require business justification for use of non-compete provisions and also payment of compensation to an employee for the duration of a restraint.

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On 4 March 2024, the Dutch government began a six-week period of internet consultation on a bill which would introduce changes to the rules on the use of non-competition clauses in employment contracts.

The proposals would see a tightening of the rules on the use of non-competition clauses which, according to the consultation, amount to a restriction on an employee’s ability to choose their employment freely. The government’s position is that:

• Non-compete provisions should be included in employment contracts and relied on only when this is truly important for the protection of the employer's goodwill.  If this protection is not required, then freedom of choice for employees and labour mobility should prevail.
• Research has shown that in many cases, non-competition clauses are included as standard in employment contracts, even when there is no reason to do so. For example, when the employee does not come into contact with trade secrets, pricing information or customer data.
• The use of non-competition clauses often leads to unjustified restrictions on employees and hampers the proper functioning of the labour market. Employees are restricted from changing jobs, remaining employed within their area of expertise, and are also making it more difficult for employers to hire new staff.

This bill is intended to achieve the following objectives:

• a decrease in the use of the number of non-essential clauses, promoting free choice of employment, labour mobility and the best distribution of labour resources;
• achieving a fairer balance of interests between employers and employees;
• providing greater legal certainty, making it clear in advance which rights and obligations apply to employers and employees, so reducing the need to go to court; and
• retaining the opportunity for employers to protect their business.

The proposed changes to the rules include:

• limiting the effect of a non-competition clause to a period of one year after the contract ends;
• requiring that the geographical area where the employee cannot work be specified;
• requiring a sound business justification for the use of a non-compete clause in any type of employment contract (not only for temporary employment contracts, as is currently the case);
• requiring an employer to notify an employee in writing at least one month before the end of employment that it is invoking the non-competition clause and specifying the duration.  If the employee terminates the employment, the employer must invoke the clause within two weeks; and
• requiring employers to pay an employee compensation of 50% of their last monthly salary for each month a non-compete clause is invoked.