Agreeing a Non-Competition Clause In Writing
Court of Appeal of Leeuwarden, 22 February 2011, JAR
2011/89; Court of Appeal of Amsterdam, auxiliary location
Arnhem, 25 January 2011, JAR 2011/149; Court of Appeal of
Amsterdam, 24 May 2011 (unpublished)
Many employers include a non-competition clause in their
employment contracts. The law provides that in order for such
non-competition clause to be valid, it must be agreed in writing. A
reference in the employment contract to rules and regulations, a
collective labor agreement, a staff handbook, etc. in which a
non-competition clause is included, does not suffice; the
non-competition clause must be included in the employment
contract.
New Employment Contract or Continuation?
The requirement of written form also entails that, if an
existing employment contract is terminated and a new employment
contract is entered into between the same parties, the
non-competition clause will have to be agreed in writing again. In
lower case law, discussions have been going on for quite a while
about the question of whether the continuation of an existing
employment relationship on the same conditions after the expiry of
the initial contract term, which is often only recorded through a
short letter of confirmation, must be regarded as the entry into a
new employment, and whether in that case the non-competition
clause must be agreed in writing anew. Some Subdistrict Courts hold
the view that the requirement of recording a non-competition clause
in writing must not be passed over rashly, since the consequences
of such a clause are drastic for the employee, and that the
non-competition clause should therefore be agreed anew time and
again. Other Subdistrict Courts hold the view that in the event
that a fixed-term employment contract is extended after the expiry
of the term on the same conditions, this extension must be regarded
as a continuation of an existing employment contract, and
that in that case the non-competition clause does not have to be
agreed anew.
Opinion of the Courts of Appeal
Recently, the Court of Appeal of Leeuwarden, the Court
of Appeal of Amsterdam with auxiliary location in Arnhem, and the
Court of Appeal of Amsterdam have expressed opinions on this
matter. All three Courts of Appeal followed the latter
argumentation. The Courts of Appeal considered that if an
employment contract is extended on the same conditions, this
extension should not be regarded as the entry into a new employment
contract, but as the continuation of an employment contract, and
that it is not necessary to agree on the non-competition clause in
writing again. In these cases it is important, however, that the
employer had always explicitly stated in the extension letter that
the terms and conditions agreed would remain in full force and
effect.
Although the Supreme Court may, of course, render a different
decision about this matter in the future, for the time being the
Courts of Appeal have ended the prevailing lack of clarity
regarding the requirement of written form of the non-competition
clause in the event of the extension of an employment
contract.
Tips
- For safety's sake, it is still wise to include the
non-competition clause explicitly in every employment contract
– whether the contract is new or an extension of an existing
contract. This new contract or the extension letter must also
be signed by the employee.
- The above advice should certainly be heeded in the event
that new employment conditions are agreed in the new
contract/continuation of the employment contract, or if the
employee will take up another position. In that case, there is
a risk that the non-competition clause will ‘become a heavier
burden’, so that the non-competition clause that related to the
old situation will lose its validity.