Netherlands Update: Is it Possible to Have Unlawful Competition Without a Non-Competition Clause?

Yes, you can! If no non-competition clause has been agreed or such a clause is no longer valid, this certainly does not mean that a former employee is free to run off with the customers. That’s the way it is.

Starting point: free competition

If no non-competition clause has been agreed, competition by the former employee is not often considered unlawful. The basic principle is that, without a non-compete clause, the employee may, in principle, engage in competitive activities after the end of the employment, such as starting a competing company, joining a competing company or serving customers of the former employer.

Free competition not unlimited

However, the principle of free competition is not unlimited. When is there unlawful competition against the former employer? Unlawful competition may arise if there are ‘additional circumstances’. For this test, the criteria from the Supreme Court judgment of 1955 (Boogaard v Vesta) are usually used. Old, but gold!

It follows from that judgment that unlawful competition exists if: (i) the former employee systematically and substantially breaks down the sustainable business flow of the former employer, (ii) using confidential knowledge or data obtained from the former employer. Whether these criteria are met depends on the circumstances of the case for each situation. In any case, the bar is set high.

Circumstances that may be of interest

It follows from the caselaw which circumstances may be relevant for the test of unlawful competition. In a recent ruling by the Amsterdam District Court, the former employee – with a now-expired non-competition clause – had set up a company that focused on the same sector as that of the former employer. The new company served one of the same clients as the former employer and had vacancies outstanding with clients of the former employer. However, the judge found that the ‘systematic and substantial dismantling of the sustainable business flow of the former employer’ (criteria 1) proved insufficient. The turnover and profit figures showed that the company of the former employee was a very small player in the market compared to the former employer and it is common for a client to do business with several, in this case, temporary employment agencies. According to the judge, there was therefore no question of ‘taking away’ customers.

This ruling is in line with previous case law. Among other things, criteria 1 takes into account the number of relations that have been moved to ‘switch’ to the company of the former employee and this number must be seen in relation to the number of relationships of the former employer. For example, market conditions and the (future) extent of the damage suffered by the former employer are also taken into account. In addition, confidential information must be used (criteria 2). Think of prices, know-how, models and customer files.

However, this ruling prohibited the former employee from engaging in competitive activities. This was because the employee had taken advantage of another employee who had (did) violate his non-competition clause and thereby committed breach of contract against the former employer. Because the employee took advantage of this, the former employer could also hold the employee liable in tort.

Opportunities for former employer

If there is unlawful competition, the former employer may claim compensation from the former employee. The employer can also claim in interlocutory proceedings that the former employee ceases competing activities. If there is no unlawful competition, but the former employee does abuse the breach of contract of another, the former employee can be held liable on the basis of tort.

Tip for employers?

Although the bar is high, it is good to be aware that even without a (legally valid) non-competition clause, there may be unlawful competition by the former employee.

By Hocker, Netherlands, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact netherlandslabor@transatlanticlaw.com

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