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Restrictive Covenants in The Netherlands

1. Definition of Restrictive Covenants

A restrictive covenant is a clause included in the (signed) employment contract that prohibits the employee from engaging in certain activities for a specified period of time. The clauses must be written down in a language the employee understands. Examples of restrictive covenants are:

  • A non-compete clause;
  • A non-solicitation clause;
  • A secrecy clause.

2. Types of Restrictive Covenants

a. Non-Compete Clauses

Since the Work and Security Act entered into force it is in principle no longer permitted to include a non-competition clause in a fixed-term employment contract, unless the employer has a substantial business interest in including a non-compete clause (which must be substantiated in the employment contract).

Non-competition clauses, effective for a certain scope of activities, a certain geographical area and/or for a certain number of years, must be agreed to in writing. Furthermore, the employee must be at least 18 years old at the time of signature.

The restriction must be limited to what is reasonably necessary to protect the employer’s business interests. Typically, a duration of one year is considered reasonable. Limitations as to territory and the nature of activities depends on the branch in which the employer operates and the position of the employee. The employer can enforce the non-competition clause in court and claim damages from the employee.

b. Non-solicitation of customers & Non-solicitation of employees

Employment contracts can also contain a non-solicitation clause, which stipulates that the employee is not allowed to solicit his/her employer’s customers or employees during or after his/her employment. The clause has to be in a language the employee understands. There are no other requirements as to form. The employer can enforce the non-solicitation clause in court and claim damages from the employee.

3. Enforcement of Restrictive Covenants—process and remedies

A restrictive covenant can be enforced in court if an employee does not comply with the restrictions, which follow from contract. In court it will first be decided whether the restrictive covenant in the employment contract is valid, and secondly, whether the employee breached it.

If it is decided that the employee did not comply with a validly agreed restrictive covenant, the employer can request the court to issue a ban and to impose a penalty. The employer can also claim damages from the employee for not complying with what they agreed upon.

4. Use and Limitations of Garden Leave (definition and applicability)

In principle, garden leave is not a concept known under Dutch law. It is not allowed to unilaterally release an employee of his/her duties without the employee’s consent. If an employee does not agree to a release, the employer can suspend the employee. However, the employer should be able to substantiate the reason behind the suspension and if a fair reason is not in place, the employee can claim reinstatement (even in court). The main question is what a “good employer” would do in a similar situation.

For more information on these articles or any other issues involving labour and employment matters in Netherlands, please contact Christiaan Oberman, Partner at Palthe Oberman (www.paltheoberman.nl) at oberman@paltheoberman.nl
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