
25 Apr Long-awaited proposal for modernizing non-compete clauses published
On 4 March 2024, the long-awaited proposal for modernizing non-compete clauses was published for internet consultation. The proposal aims to discourage the inclusion of non-compete clauses as standard provisions in employment contracts. Research indicates a significant increase in the use of non-compete clauses, which use nearly doubled in just under six years since 2015. Currently, an estimated total of over 3 million employees are bound by non-compete clauses. According to the legislator, this has led to unjustified restrictions on employee mobility and has had a negative impact on the labor market.
As expected, the proposal imposes significant limitations on non-compete clauses (including non-solicitation and anti-poaching clauses). The key changes are as follows:
-
-
- Maximum duration: non-compete clauses may not exceed 12 months after the termination of employment. Clauses with a longer duration or unspecified duration will be declared void.
- Geographic scope: it will be mandatory to specify the geographic scope of the non-compete clause. Parties have the freedom to determine the scope themselves, but if not specified, the clause will be declared void.
- Justification of the non-compete clause: employers must identify significant business interests justifying the non-compete clause, even in indefinite-term contracts.
- Compensation: employers must compensate employees with 50% of their monthly salary (including benefits) for each month the employee is bound by the non-compete clause. For example, if a non-compete clause of 12 months is agreed upon, and the employer intends to enforce it for six months, the employer owes compensation equal to three months’ salary.
- Notification period: employers must inform employees in a timely manner, before the end of the employment contract, whether or not the non-compete clause will be invoked. The general rule is that the employee must know one month before the end of the employment whether the employer will invoke the non-compete clause.
- Transitional provisions: the principle is that non-compete clauses validly agreed upon before the new legislation comes into force will remain valid. However, the obligation to pay compensation will apply to every non-compete clause (including existing ones) invoked after the new legislation comes into effect.
-
After the internet consultation, the proposal must still be submitted to the First and Second Chambers of Parliament. The proposal is therefore expected to come into effect no earlier than 1 January 2025.
For questions or advice on this topic, please contact Anna Görgün (+31-6-454 408 91).