BUREN (The Netherlands) Article: Draft Bill on Modernizing Restrictive Covenants

    On 4 March, Karien van Gennip, Acting Minister of Social Affairs and Employment introduced the Draft Bill on Modernizing Restrictive Covenants for internet consultation. As expected, the draft bill includes significant restrictions on both non-competition clauses and business-relations clauses. The outlines of the proposed changes are as follows.

    Proposed changes in brief

    • The maximum duration of the non-competition clause is set at 12 months after the end date of employment. A clause lasting longer than 12 months will be void.
    • The geographical scope of the clause must be explicitly stated. It is mandatory to specify the area or radius in which the clause applies.
    • The employer’s interest must be justified, including clauses in indefinite employment contracts. This obligation already applies to clauses in fixed-term contracts. The employer must clearly explain why they deem the restriction necessary due to specific company interests.
    • The employer must inform the employee at least one month before the end of the employment contract whether they intend to enforce the clause and for how long.
    • When invoking the clause, an employer must pay the former employee compensation of at least 50% of the last monthly salary for each month the employer relies on the clause. For example, if the clause is invoked for 12 months, the employee is entitled to compensation of 6 monthly salaries. This compensation must be paid within 15 days after employment ends. If the employer fails to do so, the clause is not enforceable. The compensation is not due in case of serious misconduct by the employee.

    Business relations clause
    The proposed changes also apply to a business relations clause, which prohibits employees from working for or with the employer’s relations, such as clients.

    The internet consultation for the draft bill runs from 4 March until 15 April. During this period, everyone can respond and provide feedback on the proposal. Subsequently, the House of Representatives and the Senate will deliberate on the draft bill.

    Any final changes will probably limit the possibility for companies to apply and enforce restrictive covenants. We will therefore closely monitor the legislative process and share updates.