Non-compete newsletter

1. Introduction

As a basic principle in Belgium, everyone is free to engage in any trade or carry out any profession, business or craft, or economic activity, as they see fit. This principle has been in place since the Decree d’Allarde (1791) and is now legally enshrined in Article II.3 of the Economic Law Code. It forms the basis for free competition.

However, this does not mean that competing is à always allowed. Indeed, freedom of enterprise should not be considered an absolute freedom. After all, the freedom of enterprise of one person or company is limited by the corresponding freedom of the other person or company. Moreover, there are legal limits on entrepreneurial freedom that curb the excesses of competition, especially unfair competition. In most cases, however, these legal limits do not provide the sufficient or desired protection that enterprises want to secure their (economic) interests.

For example, companies are rightly concerned about the optimal protection of knowledge carefully accumulated by them, better known by the English term know-how. However, in the course of their business, companies often have to share this know-how with their employees and certain independent service providers. The same regarding contacts and contracts with suppliers and customers; these too are generally of great importance, especially in a competitive business.

It often happens that an employee, who builds up experience and knowledge within the company, leaves the employer to join a competitor or start his own competitive activity. The same regarding self-employed persons (agents, distributors, managers, etc.). It is not merely imaginary that those parties use that accumulated experience and knowledge in their future work. This is the normal course of business and, in principle, cannot be blamed on the party concerned.

Therefore, it is often advisable to restrict free competition by contract, which can be done effectively, provided, however, that certain conditions are respected.

2. Non-compete clause

A non-compete clause is one that prohibits its debtor from starting a competing business or – in the case of an employee – from joining a competing business.

A distinction is made below between, on the one hand, the agreements that can be made with employees and, on the other hand, the agreements that can be made with independent service providers.

2.1. Non-compete clause self-employed service providers

In self-employed service provision, parties have the freedom to include a non-compete clause in their (service) agreement.

Unlike employment contracts (see infra), there is essentially no legal framework for drafting a non-compete clause. Nevertheless, a non-compete clause must comply with various restrictions to be legally valid so as not to unduly curtail the other party’s freedom of enterprise.

A non-compete agreement must be limited in time. The agreement must thus provide for a maximum duration during which the non-compete obligation applies. The maximum duration will always have to be assessed case by case, taking into account the concrete circumstances, the sector concerned, the duration of the cooperation, etc. For example: if the self-employed person has only worked for a company on one three-month project, it is obvious that a one-year non-compete clause will probably be too long. However, if the cooperation lasted more than 20 years, a non-competition clause of, say, two years will probably be accepted. The exact assessment will therefore depend on the concrete circumstances. In their assessment, courts will also consider to what extent the company has a legitimate interest in imposing the non-competition clause for the contractually foreseen duration.

A non-compete clause must also be limited to a certain geographical area. In principle, the non-compete may not extend territorially beyond what is necessary. Again, this is in line with the rationale of a non-compete clause. For example, if the company does not carry out any activities in the Netherlands, it is obvious that the non-compete clause will not be allowed to extend to the Netherlands. One has to weigh up to what extent the other party actually has a legitimate interest in the non-compete clause, which again forces an assessment of the concrete circumstances.

The clause must accurately and correctly describe the (temporarily) prohibited competitive activities and these must be related to the activities that employee or self-employed service provider previously performed for the beneficiary of the clause. For example, if the self-employed person provides IT services to the company, the self-employed person will not be allowed to be prohibited from offering legal services elsewhere. A good wording of the clause is also very important here, as too broad a definition will limit the freedom of enterprise of the employee or self-employed service provider too zeet so that it could be moderated or even annulled.

2.2. Employee non-compete clause

According to Article 17, 3°, b) of the Labour Contracts Act, an employee is obliged, both during the contract and after its termination, to refrain from performing or cooperating in acts of unfair competition. To prevent the employee from committing acts of unfair competition both during and after the end of the employment contract, the employer is advised to include a non-compete clause in the employment contract or any other agreement with the employee.

For the non-compete clause to be valid, the employee’s annual salary must first exceed a certain amount. If the gross annual salary is below 36,785 euro (scale 2022), the non-compete clause is considered non-existent. If the gross annual salary is to be situated between 36,785 euro and 73,571 euro (scale 2022), the non-compete clause only applies to the functions determined by collective labour agreement concluded at sectoral level or, failing that, by collective labour agreement concluded at company level. When the gross annual salary exceeds 73,571.00 euro (scale 2023), a non-compete clause can be validly registered in the employment contract each time, except for the functions excluded by collective labour agreement concluded at sectoral level (Article 65 of the Labour Contracts Act). For sales representatives, the clause is always allowed at an annual salary higher than 36,785 euro (scale 2022)

However, that non-compete clause should meet the same material and geographical conditions as described above for self-employed services.

With regard to the temporal condition, there is a difference with those imposed in the case of self-employment. The non-competition clause must be limited in time to a period of 12 months following the end of the employment contract, and the non-competition clause must provide for a lump-sum compensation for the employee to compensate for not being allowed to engage in competitive activities for a certain period of time. According to Article 65 of the Labour Contracts Act, such compensation must be at least half of the gross salary corresponding to the term of the clause. So, for example, if the clause runs for a period of 12 months after the end of the employment contract, the compensation is at least six months’ gross salary.

The Employment Contracts Act only provides that the gross wage received by the employee during the month preceding the termination of the employment contract must be taken into account. For employees with variable pay, it is the average gross pay received during the 12 months preceding the termination. As for any bonuses and end-of-year bonus, a majority of the jurisprudence considers that they should be taken into account.

However, the employer can waive the application of the non-competition clause within 15 days from the termination of the employment contract. In that case, the clause will have no effect and therefore the compensatory compensation provided for in the last condition of validity, as mentioned above, will not be due either. The waiver is not subject to any formal condition but it must be clear. It is not enough for the employer not to pay the compensatory allowance for a waiver to exist. On the other hand, the employee is entitled to demand payment of the compensation if the employer does not waive the effective application of the non-competition clause within the stipulated period of 15 days.

3. Sanction

If the contractual non-compete obligation is insufficiently limited, the court may annul (in part) this unauthorised non-compete clause and thus render it inoperative altogether.

Therefore, always provide a safety net in your agreements as well. Since the Cassation rulings of 17 December 2012, 14 September 2017 and 4 January 2019, it is accepted that an excessive non-compete clause can be curtailed, but in principle only if this is provided for in the relevant agreement. If not, the sanction is in principle nullity.

In its judgments of 23 January 2015 and 25 June 2015, the Supreme Court ruled that judicial moderation of non-compete agreements is possible. Specifically, this means that the court can mitigate an invalid non-compete clause, provided that the continuation of the partially annulled non-compete clause meets the intention of the parties. It is therefore recommended to stipulate in the contract that null and void clauses are not annulled but mitigated/reduced to the maximum allowed by law. However, the vast majority of legal doctrine today holds that mitigation is not possible for non-competition clauses included in an employment contract.

4. Decision

Companies are strongly advised to limit the principle of free competition by including non-compete clauses in employment contracts, independent service agreements or other agreements. By doing so, the company can safeguard its (economic) interests and, among other things, avoid confidential business information being used or misused by a (former) employee or self-employed service provider.

When drafting a non-compete clause, the company must ensure that it is not formulated too broadly. However, a non-compete clause is only permissible if the clause is limited temporally, materially and geographically, in each case these restrictions must be proportional to the legitimate interest of the creditor/beneficiary.