Business Law Articles
By Jan Dop, LL.M.
Russell Advocaten, B.V.
Non-compete clauses and non-solicitation clauses have to fulfill specific conditions to be valid, especially if they are included in temporary contracts.
Non-Compete and Non-Solicitation Clauses
A non-compete clause prohibits employees for a certain period beyond the term of their employment contract from being directly or indirectly active or involved in a business performing similar activities. A non-solicitation clause is an agreement between employer and employee that prohibits the employee from being active for or having contact with clients and business associates of the employer beyond the term of the employment contract.
Starting point is that a non-compete and non-solicitation clause are not valid in temporary contracts. The reason for this is that it would doubly disadvantage the employee: such a provision obstructs the transition to another job while it is clear from the beginning of the contract that it is just a temporary one. A provision is valid only if it contains the substantial business interests which require such a provision. If the employer has provided reasons but they fail to convince the court, the provision can be declared void retrospectively.
A recent case dealt with two employees of a company that invested in land for third parties. One of the employees had a fixed contract and the other one a temporary contract. Both had terminated their employment contract to jointly start a competing company. Next, they were held to the non-compete and non-solicitation clause. Is that allowed in case of the employee with a temporary contract, too?
The non-compete clause contains that the employee will gain complete insight in the operating method the employer’s market position is based upon, the location where the employer performs activities, and that he will be informed of the employer’s financial position so that a provision is required to protect the employer’s market position. The requirement of a non-solicitation clause is motivated by indicating that the company depends entirely on retaining its clients and business associates. The employees have so much contact with the employer’s clients that the employer has an interest in prohibiting the contact beyond the term of the contract.
Is this sufficient to maintain both provisions? The court decided positively in this question and considered both the non-compete and non-solicitation clause to be valid by taking into consideration that:
- The former employees intend to buy land that the employer wishes to buy too.
- The former employees may disregard opportunities for the company until they can use them for their own company.
- Land investment is a small sector. The new company will therefore have to acquire customers from the existing customers of the former employer.
- The former employees had been in service for a rather short period and were trained by the former employer to work in the sector.
- The two employees were part of the company’s core staff.
Therefore, also the employee with a temporary contract is prohibited from exploiting the competing business, as long as the clauses are effective.
A non-compete clause and a non-solicitation clause may be included in a temporary contract. However, formulating these clauses requires customization, because they have to provide sound reasons. Would you like a non-compete and/or non-solicitation clause drawn up? Or would you like to have existing agreements assessed? We will gladly check to what extent your employment contracts fulfil the statutory requirements. Please contact us.