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Employers: mind legal validity of agreed non-compete clause upon renewal of employment contract

Employers: mind legal validity of agreed non-compete clause upon renewal of employment contract

A legally valid non-compete clause can only be agreed in writing with an employee of age. The requirement to record in writing such an agreement must ensure that an employee has been able to properly consider the consequences of agreeing a non-compete clause.

In the judgment of 3 November 2010 of the sub-district court of Helmond (as a provisional relief court), the judge made a conspicuous decision regarding the legal validity of a previously agreed non-compete clause upon the renewal of an employment contract for a definite period.

In this case, it concerned an employee of age who was employed for a definite period (six months) in December 2003 in the position of field engineer. In the employment contract a non-compete clause had been agreed, which stipulated, in brief, that the employee was not permitted to perform any competitive work within a radius of 25 km for a period of two years. Whereas the employment contract for a definite period had been tacitly renewed, without a new employment contract being entered into, the employee was presented with a new non-compete clause in June 2005, whereby the radius of 25 km was expanded to one of 50 km. The employee did not want to sign this new non-compete clause. In 2010 (when the employment contract had by then become a contract for an indefinite period), the employee wanted to go work for a competitor and was of the opinion that he was not bound by the non-compete clause that had originally been entered into in December 2003.

The sub-district court held that the parties should have agreed a non-compete clause anew and in writing when the first employment contract for a definite period was renewed, because the renewal of the employment contract for a definite period meant that a new employment contract was being ‘entered into’. Upon ‘entry’ into a new employment contract, the non-compete clause must also be entered into anew in writing. The fact that the law stipulates that upon tacit renewal that new employment contract for a definite period is ‘entered into’ subject to the previous conditions, does not prejudice the requirement to record in writing such an agreement according to the sub-district court. Since the non-compete clause had not been entered into anew in writing, the employee was no longer bound thereby.

The reasoning of the Helmond sub-district court is in conflict with the literature and earlier case law, from which it is evident that in the event an employment contract for a definite period is tacitly renewed, the non-compete clause (agreed in writing with the first employment contract) will retain its legal validity. If the judgment of the Helmond sub-district court is taken into consideration, it is advisable in the event an employment contract for a definite period is tacitly renewed to have the employee sign a non-compete clause once again (prior to the expiry of the term of the previous employment contract for a definite period).

Thuy Nguyen-van der Klift

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