Is a non compete clause in a termination agreement valid according to Dutch Law? In general, a termination agreement pursuant to art. 7: 670b BW (Dutch Civil Code) is also as a settlement agreement pursuant to art. 7: 900 et seq. BW. These kind of agreements may have clauses about the (in)ability of the employee to compete with his employer after the termination of the employment contract.
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Settlement agreement and a non-competition clause
A so called settlement agreement (art. 7: 900 BW/DCC) ends an uncertainty or dispute between the employer and employee. In this respect, also arrangements can be made regarding a non-competition clause, even if at that time there is no question of a dispute about this clause.
This means that Article 653 BW is applicable to a non compete clause which is laid down in a settlement agreement:
The court may stipulate a clause as referred to in paragraphs 1 and 2:
… b. cancel in whole or in part if, in relation to the interests of the employer to be protected, the employee is unfairly harmed by that clause.
Non-competition clause in a termination agreement
According to Dutch case law, the content of a non-competition clause in a termination agreement, means that the employee has accepted the consequences of the non-competition clause, after considering his own interests. By confirming the non-competition clause in a termination agreement, the employee has implicitly acknowledged the employer’s interest in such a clause. The employee has agreed to a package of conditions and the non-competition clause is one of those conditions.
The balance agreed between the parties will be disturbed and the basis of the termination agreement will be canceled, if the court would be entitled to interfere.This is more obvious if the employee has had legal advice on this package before he signed.
Weighing of interests of a non compete clause
This means that only an unforeseen change in the interests of employer and employee after the conclusion of the termination agreement can lead to a successful appeal to art. 7: 653 BW, and that the freedom of the judge to apply the weighing of interests of a non compete clause laid down in a termination agreement, is strongly restricted. Unfair disadvantage is therefore not obvious.
The Amsterdam Court of Appeal ruled that the circumstance that the parties have concluded a settlement agreement, in the context of the termination of an employment agreement, means that the court should act reticent when considering the interests of the parties on the basis of art. 7: 653 BW.
New employer can act unlawfully
A new employer takes a risk when entering into an employment contract with an employee who, because of a non-competition clause with his former employer, is not allowed to do so. In summary, it means that the new employer can act unlawfully with regard to the employee’s former employer. Whether or not, depends on the circumstances.
In case law, the requirement is often made that the familiarity of the new employer with the competition or relationship clause is not sufficient and that there must be additional circumstances that lead to unlawfulness.
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