On 4 March 2024, the Dutch (outgoing) cabinet presented a bill to tighten the rules around non-compete clauses in employment contracts.

The current Dutch legal regime regarding non-compete clauses can be considered uncharacteristically employer-friendly. If such clause is entered into in writing, in a permanent employment contract with an employee of age, it is valid. No compensation is due when the clause is invoked and only the court can limit or nullify a validly agreed non-compete clause. Only one additional requirement exists for non-competes in temporary contracts: it should be motivated in the clause why it is considered necessary for the protection of compelling business interests.

Based on 2021 research, the (outgoing) cabinet concluded that the current legal regime has led to massive and improper use of restrictive covenants: in a total Dutch labour force of around 8.4 million people, estimates are that around 3.1 million are bound by non-compete clauses. This is considered to hamper innovation and labour mobility. The primary goal of the proposed bill is therefore to reduce the use of non-compete clauses, whilst also still allowing the use of such clauses when and where it is actually needed.

The intended changes can be divided in two categories. The first category relates to required actions when agreeing a non-compete:

• The non-compete clause must mention the duration and the geographical area in which an employee cannot compete.
• The duration of a non-compete can be maximally one year after termination;
• Explanation why the non-compete is necessary for compelling business interests must also be included in non-competes that are part of a permanent contract. The motivation will also have to be kept ‘up to date’ – this will require the employee’s consent.

The second category relates to required actions when invoking a non-compete:

• A non-compete only applies when it is invoked timely and in writing by the employer. If it is not (timely) invoked, the non-compete lapses by law.
• Invocation should be done ultimately one month before the termination date of the employment agreement. Some exceptions apply. Most importantly: in case of an employee resigning the term for invoking is two weeks after the date of resignation.
• An employer can opt to limit invocation to less than the contractually agreed period.
• When a non-compete is invoked, the employer is due compensation to the employee that is determined by the period during which it is invoked. The compensation is 50% of the last earned salary times the period during which the non-compete is invoked. For example: a non-compete which is invoked for 6 months will lead to compensation of 3 months’ salary.
• The compensation must be paid in full and upfront, ultimately on the last day of the employment agreement (some exceptions apply).

The intention is that this bill enters into force on 1 January 2025. For existing non-compete clauses, the first category of restrictions would not apply. However the second category would apply with immediate effect. Our expectation is that this bill is likely to be passed.

Earlier this year a motion has been adopted in Parliament, which orders the (outgoing) cabinet to investigate whether non-compete clauses should be banned in full for employees who earn less than 1.5 of the average income (2024: EUR 66,000 per annum). This is not (yet) part of the proposed bill but might be added later.

This article is also published in Lexology (ILO).