Non-Compete Clause During Reorganization

The non-compete clause upon dismissal

A non-compete clause (concurrentiebeding) restricts your ability to work for a competitor or start a competing business after the end of your employment. During a reorganization, this can have significant consequences for the employee: your employer terminates your employment while simultaneously limiting your options to find work elsewhere.

The legal basis for the non-compete clause is Article 7:653 of the Dutch Civil Code. A non-compete clause is only valid if it has been agreed in writing with an adult employee. For permanent contracts, a written clause suffices. For temporary contracts, a non-compete clause is only valid if the employer has provided a written justification explaining which compelling business interests necessitate the clause.

A non-compete clause does not automatically lapse upon dismissal. The clause remains in force after the end of the employment unless it is explicitly lifted or limited in the settlement agreement. This makes it an important negotiation point during reorganizations.

Common situations

Employer dismisses you but maintains the non-compete
You want to work for a competitor but are bound
Your role changed but the clause was not updated
The clause covers too broad a geographic area
The duration of the clause is unreasonably long
You have a non-solicitation clause that is too broadly drafted
There is a high penalty for breach

When can you challenge the non-compete clause?

When dismissed during a reorganization, there are several grounds to challenge or limit a non-compete clause. The court always conducts a balancing-of-interests test between the employer's interest in enforcement and your interest in finding a new position.

Balancing of interests

The subdistrict court (kantonrechter) assesses whether you are unfairly disadvantaged by the non-compete clause relative to the employer's interest in protection. During a reorganization, it can be argued that it is unreasonable for the employer to dismiss you and restrict your ability to work elsewhere. The initiative for termination came from the employer, not from you.

Changed role or organization

If your role changed substantially during the employment — for example due to a reorganization — without the non-compete clause being updated, the clause may under certain circumstances be wholly or partially set aside. The court assesses whether the clause is still proportionate in relation to your current (or last) role. A clause drafted for a different position may be set aside.

Geographic and temporal limitations

A non-compete clause must be proportionate in duration and geographic scope. While current law does not prescribe a fixed maximum duration, proposed legislation envisages a limit of twelve months. A very broad or insufficiently specific non-compete clause can be limited or annulled by the court.

Seriously culpable employer conduct

If the end of the employment is the result of seriously culpable conduct by the employer, the non-compete clause may wholly or partially lapse under Article 7:653 paragraph 4 of the Civil Code. The threshold for seriously culpable conduct is high. Only in cases of serious shortcomings on the part of the employer may this apply.

Non-compete vs. non-solicitation clause

The difference

A non-compete clause (concurrentiebeding) prohibits you from working for a competitor or starting a competing business. A non-solicitation clause (relatiebeding) is more limited: it prohibits you from contacting clients, suppliers or business relations of your former employer.

A non-solicitation clause is generally considered less restrictive than a non-compete clause because it limits your career options less broadly. You can work for a competitor but may not approach the relations of your former employer. In negotiations, converting a non-compete clause to a non-solicitation clause can be an acceptable compromise.

Both clauses must meet the same validity requirements: agreed in writing with an adult employee, and for temporary contracts, accompanied by a written justification of compelling business interests.

Penalty clause for breach

Many non-compete and non-solicitation clauses include a penalty clause (boeteclausule) that imposes a financial sanction for breach. The penalty may be a fixed amount or an amount per day of ongoing breach.

A contractual penalty is not automatically untouchable. The court can moderate the penalty under Article 6:94 of the Civil Code if fairness clearly requires it. For excessive penalty amounts, moderation may be possible. The court considers the severity of the breach, the relationship between the penalty and actual damages, and the circumstances of the case.

When negotiating the settlement agreement, it is important to address not only the non-compete clause itself but also the penalty clause. If the clause partially remains in force, the penalty clause should be adjusted accordingly.

Negotiating the non-compete clause

The settlement agreement is the moment to address the non-compete clause. It is essential to deal with it explicitly — if it is not included in the VSO, the clause remains unchanged and in force after the end of the employment.

During reorganizations, there is regularly room to negotiate the non-compete clause. The employer initiated the termination and typically has less interest in enforcing the clause when the employee did not leave voluntarily.

Possible outcomes of the negotiation include:

Complete release from the non-compete clause
Conversion to a (more limited) non-solicitation clause
Reduction in duration (e.g., from twelve to six months)
Reduction in geographic scope
Financial compensation for the period the clause is in force
Release of the penalty clause or reduction of the penalty amount

Depending on your situation, limiting the non-compete clause can be more important than a higher financial severance. If the clause seriously restricts your career options, removing it is a substantial part of the total departure arrangement. We advise always raising the non-compete clause during settlement negotiations, even if the employer does not bring it up.

Upcoming legislation

Legislative proposals have been announced that may further restrict non-compete clauses. Proposed changes under consideration include:

A maximum duration of twelve months
A mandatory geographic scope in the clause
Compensation of at least 50% of monthly salary for each month the clause is invoked
An activation obligation for the employer prior to the end of employment

These proposals are not yet final and may change, but they indicate that the legislator is taking a more critical view of non-compete clauses. In the meantime, existing law applies and negotiation remains the most important avenue for limiting or lifting the clause.

The role of the court

If you and your employer cannot reach agreement, the subdistrict court can be asked to assess the non-compete clause. The court conducts a balancing-of-interests test and can annul the clause wholly or partially, limit its duration, restrict its geographic scope or award compensation for the period it is in force. In urgent situations, a summary proceeding (kort geding) can provisionally suspend the clause so you can work elsewhere while awaiting the full proceedings.