Ministry working on new law to restrict non-compete clause

Companies will soon no longer be able to prohibit their employees from doing the same work for a competitor after their employment relationship has ended. Minister Karien van Gennip (Social Affairs and Employment) is working on a bill to restrict this so-called non-compete clause.

A non-compete clause can be used to protect trade secrets or business relationships. "However, we find that contracts increasingly contain a no-compete clause by default, even if there is no good reason for it," van Gennip said. "This is unnecessarily restrictive for employees and hinders progress in the labor market."

The law will set a limit on the duration of a non-competition clause. The employer must also indicate exactly where the provision applies and which "serious business interests" are served by it. Furthermore, there must also be compensation for the employee in the form of a certain percentage of the most recently earned salary.

Van Gennip cited studies by research firm Panteia showing that one in three employers in the Netherlands uses a non-compete clause. It is usually standard in an employment contract, often without good reason. An estimated 3,1 million employees in the Netherlands are bound by such a clause, which can prevent them from looking for another job.

Exactly how long a non-compete clause may last varies from case to case, Van Gennip explained. However, based on court decisions, it can be argued that anything longer than a year is disproportionate." But depending on the type of company and the severity of the task, it could be as long as six months.

The new rules apply to employees in the Netherlands, even if they work for a foreign company. Van Gennip expects that employers will also adjust existing permanent contracts accordingly once the law comes into force.

Also, employers' associations VNO-NCW and MKB-Nederland agree with Van Gennip's proposal. Often, competition clauses "unnecessarily hinder mobility in the labor market," the organizations said. "At the same time, it should be possible to use these clauses when really necessary to protect company information or competitive position," they add.