Settlement Agreement and Non-Compete Clause: How Do You Handle It?

·14 min read
Settlement Agreement and Non-Compete Clause: How Do You Handle It?

Discover how a settlement agreement and non-compete clause can affect your future employment opportunities and what you can do about it.

A settlement agreement (VSO) often involves more than just the severance payment and end date. Provisions such as a non-compete clause or non-solicitation clause also play an important role. Many employees sign a settlement agreement without realising that a non-compete clause can hinder them in finding new work. This can have far-reaching consequences.

In this article, we explain what a non-compete clause entails, how it works in a settlement agreement, what negotiation options you have and how a lawyer can help you with this.


What is a non-compete clause?

A non-compete clause is a provision in your employment contract that stipulates that after the end of your employment you may not work for a competitor or start a competing business yourself.

A non-solicitation clause is a variant whereby after your dismissal you may not maintain contact with clients or business relations of your (former) employer.


Non-compete clause and settlement agreement

When drafting a settlement agreement, the non-compete or non-solicitation clause may come up again.

Important points of attention:

  • The clause remains in force in principle, unless something different is agreed in the settlement agreement.

  • You can remove, limit or compensate it during the negotiations.

  • If your new job conflicts with the clause, this can lead to a fine or lawsuit.

    • In such a situation, your (former) employer can demand various things. Often the employer will demand that you immediately stop the work that conflicts with the non-compete or non-solicitation clause. In addition, the employer can demand financial compensation or a fine if this is included in your contract. In some cases, the employer can even claim damages if they have actually suffered damage due to your violation of the clause.
    Please note: it is not unusual for an employer to have a prohibition imposed through the courts (interim injunction) to force you to stop the activities. They can also claim the contractual fine. In short, the consequences can be quite severe if it turns out that you have violated the clause.

When can a non-compete clause be annulled or limited?

Even in special situations, such as bankruptcy or dismissal on blameworthy grounds, the non-compete clause does not always automatically remain in force. There are circumstances in which you as an employee can get out of (parts of) the clause. Important exceptions:
  • Bankruptcy of the employer: Even if the company goes bankrupt and the administrator terminates the employment contracts, the non-compete clause remains in force in principle. However, the administrator may only have an interest in enforcement if the company (partly) continues to operate or makes a fresh start. If the business definitively closes, the practical use of the clause often also lapses.
  • Seriously culpable conduct by the employer: If you are dismissed due to seriously culpable conduct by your employer (such as wrongful summary dismissal), you cannot be held to the agreed non-compete clause. This can apply both in dismissal procedures and through a court ruling.
  • Balancing of interests by the court: If the non-compete clause seriously hinders you in finding new work, you can ask the court to annul or limit the clause. In this process, the interest of the employee versus that of the company is considered.
Please note: in all these cases, the outcome depends on the specific circumstances and the interests of both parties. Therefore, always consider professional advice if you are unsure whether the non-compete clause is valid in your situation or not.

Can the non-compete clause lapse or be modified upon dismissal?

In dismissal proceedings, the employee can ask the court to annul or relax the non-compete clause. This happens, for example, when the dismissal is not attributable to the employee or when the clause constitutes an unreasonable obstacle to finding a new job. The court then assesses whether the clause remains in force, is moderated or lapses entirely. This can also be part of an ancillary claim in the dismissal request. It is therefore certainly possible to successfully object to the non-compete clause during the proceedings, depending on the circumstances of the dismissal.

Does the non-compete clause remain in force with different forms of dismissal?

Yes, a non-compete clause remains in force in principle, regardless of the reason for dismissal. Whether you are dismissed for personal reasons or due to economic circumstances: the non-compete clause usually remains in force, provided it was validly agreed upon. So it does not matter whether you resign yourself, your contract is not renewed or you are dismissed by the employer — the clause can simply be upheld.

When can a court invalidate the non-compete clause?

A court can decide to (partly) set aside the non-compete clause when it disproportionately hinders the employee in finding work elsewhere. This happens especially in the following situations:
  • Short employment periods: If you have only been employed for a short time, and therefore have gained little confidential knowledge, the court may weigh whether it is reasonable for the employer to hold you to this.
  • Bankruptcy or special circumstances: In the event of bankruptcy or other drastic circumstances, the employee's interest in finding a new job is sometimes given more weight.
  • Seriously culpable conduct by the employer: If the employer has seriously misbehaved, for example through wrongful summary dismissal, the non-compete clause usually may not remain in force.
  • Balancing of interests: The court always considers both sides: your interest in being able to work versus the interest of your (former) employer in protecting business information.
Please note: In proceedings, you can also ask the court to moderate or set aside the non-compete clause, for example as an ancillary claim upon dismissal.

Exceptions to the non-compete clause for certain reasons of dismissal

It is possible to include an exception in the text of a non-compete clause for specific reasons for dismissal. Sometimes it states, for example, that the clause lapses when you are dismissed for reasons beyond your control, such as a reorganisation or due to prolonged illness. In such a case, after your departure you can work for a competitor without restrictions. Therefore, pay close attention to the wording of the non-compete clause in your contract — these exceptions can have a major influence on your options after dismissal.

Can a non-compete clause be agreed upon again?

Yes, it is possible to make new agreements about the non-compete clause in a new settlement agreement. Parties often choose to confirm, modify or even completely re-establish the existing clause. Please note:
  • A new or modified non-compete clause must be clearly recorded in writing again.
  • If you agree to a new clause, read the content carefully, because any stricter or broader restrictions apply immediately after signing.
  • Sometimes modifications are linked to additional compensation or other conditions, so that both parties clearly know where they stand.
In short: a non-compete clause can therefore be agreed upon again, but always make careful agreements and record them clearly.

How does a court view the non-compete clause after a short employment period?

A court always makes a balancing of interests when an employee is held to a non-compete clause after a short employment period. The court considers, among other things:
  • The duration of employment: The shorter someone has been employed, the less weight the business interest usually carries.
  • Knowledge and experience: Has the employee really gained crucial information or trade secrets? After a short period, this is usually limited.
  • The employer's interest: Why does the employer want to maintain the clause? For example, to prevent competition or protect sensitive information.
Often a court will be critical when an employee is still held to the non-compete clause after only a few months, because the employer's interest is then less significant. There is a chance that the clause will be (partly) set aside, especially if the employee is unreasonably restricted by the clause in their ability to find other work.

Does the non-compete clause apply upon dismissal during the probationary period?

Even if you resign or are dismissed during the probationary period, the non-compete clause remains in principle valid. However, this does not always mean that the clause can be enforced without question. In practice, courts often look at the circumstances, such as how briefly you were employed and what (business) knowledge you acquired. If that knowledge is very limited because you were only allowed to observe briefly, then a court may decide to set aside the non-compete clause, especially if it unreasonably hinders you in finding another job. In short: yes, the clause also applies during the probationary period, but it is possible to successfully object to it if it does not work out fairly.

Influence of seriously culpable conduct on the non-compete clause

It is good to know that if you are dealing with seriously culpable conduct or omission by the employer, the non-compete clause usually no longer applies. Since the introduction of the Work and Security Act, the starting point is that the clause lapses when the employer has acted in a seriously culpable manner. When does this apply? For example, when the employer:
  • Wrongfully dismisses you summarily,
  • Refuses to pay your wages,
  • Ignores their obligations regarding reintegration,
  • Deliberately allows the employment relationship to escalate,
  • Or even engages in bullying.
In such situations, the court may decide that it is unreasonable to still hold you to the non-compete clause. This therefore gives you more freedom of movement to start work elsewhere without fear of a fine or legal action.

Non-compete clause upon transfer of the business

What actually happens to your non-compete clause when the business is taken over? Even in the event of a transfer of the company (for example, a merger or acquisition), the non-compete clause in principle simply transfers to the new owner. Your contract, including the non-compete clause, is therefore taken over by the buyer of the company. Please note:
  • The clause remains in force under the new employer, unless you make different agreements about this together.
  • The new owner may not simply modify the clause without your consent.
  • See the takeover process as an opportunity to negotiate the modification or lapse of the clause. Especially if your position changes or the business operations differ significantly.
In short: a business takeover does not necessarily change your position regarding the non-compete clause, but it does offer opportunities to renegotiate.

What happens to the non-compete clause in the event of bankruptcy?

If your employer goes bankrupt, that does not automatically mean that the non-compete clause lapses. The administrator appointed in the bankruptcy can terminate the employment contracts, but the non-compete clause remains in force in principle.

What does this mean for you?

  • You therefore cannot simply switch to a competitor, even after bankruptcy.
  • If you still want to start work elsewhere where the clause is in the way, the interests of both parties must be reconsidered:
  • Your interest: finding work again quickly and having income.
  • The interest of the administrator: protecting the value of the bankrupt company, for example if a fresh start is still possible or when negotiating ongoing contracts.
  • If it turns out that the company is completely disappearing and a fresh start is excluded, the administrator usually no longer has an interest in enforcing the non-compete clause.
Therefore, always pay close attention: discuss the non-compete clause with the administrator and consider the specific situation of your (former) employer.

When does the administrator no longer have an interest in the non-compete clause?

An administrator generally no longer has an interest in enforcing the non-compete clause when the company completely ceases operations after bankruptcy and a fresh start is not possible. In such a case, there are no business activities or remaining commercial interests that need to be protected against competition from former employees. The clause thereby loses its function.

Interests of the administrator regarding the non-compete clause during bankruptcy

During bankruptcy, the administrator takes control and determines whether the non-compete clause remains in force. What are actually the administrator's interests in maintaining such a clause?
  • Preservation of business value: The administrator wants to prevent valuable knowledge or client relationships from immediately 'walking away' to the competition. This reduces the chance that the built-up client base or goodwill is lost.
  • Optimising the estate: By maintaining the non-compete clause, the administrator can utilise ongoing contracts and hopefully generate more money for the creditors.
  • Chances of a fresh start: Sometimes an attempt is made to continue the company in a slimmed-down form or to sell it to a third party. In that case, it can be important that personnel with specialist knowledge do not immediately start working for a competitor.
  • Preventing erosion: If former employees immediately start working for a competitor, this can further weaken the remainder of the business — something the administrator naturally wants to prevent.
Please note: if the company stops completely and a fresh start is no longer possible, enforcing the non-compete clause often loses its purpose, because there is then nothing left to protect for the estate.

Options during negotiations

  1. Removing the clause
    Ask whether the non-compete clause can be completely removed from the agreement.

  2. Limiting the clause

    • Shorter duration (e.g. 3 months instead of 12 months).

    • Smaller geographical area (e.g. only the region instead of the entire Netherlands).

    • Limitation to specific clients or sectors.

  3. Compensation if maintained
    If the employer wants to maintain the clause, you can demand compensation.

👉 Example: An employee was not allowed to work for a competitor for one year. The employer paid him three months' additional salary as compensation.


Examples from practice

  • Example 1: An account manager wanted to switch to a competitor. In his settlement agreement, it was agreed that the non-compete clause would lapse, allowing him to start without problems.

  • Example 2: An employee received a more limited non-solicitation clause: he was only not allowed to approach clients from the last six months. This allowed him to still start his own business.

  • Example 3: An employee accepted that his non-compete clause remained in force, but received an additional compensation of €5,000 for this.


Checklist: non-compete clause in a settlement agreement

  • Check whether the non-compete or non-solicitation clause is in your employment contract.

  • Request removal or limitation in your settlement agreement.

  • Negotiate compensation if it remains in force.

  • Seek advice from a lawyer before signing.


Common mistakes

  • Signing unknowingly while the clause hinders you in finding new work.

  • Not requesting limitation or compensation for a strict clause.

  • Thinking that the clause automatically lapses with a settlement agreement — this is not the case.

What behaviours are considered seriously culpable conduct or omission by the employer?

There are various situations in which the employer's conduct can be classified as 'seriously culpable'. Examples of this are:
  • The employer responds excessively harshly or personally when criticising an employee's performance, for example by immediately pushing for dismissal.
  • After a lawsuit between employee and employer, the employer refuses to make an effort to restore the working relationship.
  • The employee's wages are wrongfully withheld or not paid.
  • The employer deliberately fails to comply with their reintegration obligations during illness.
  • There is bullying behaviour by the employer towards the employee, whether structural or not.
These behaviours can be grounds for a court to assess the employer's conduct as seriously culpable.

Frequently asked questions (FAQ)

1. Does my non-compete clause also apply with a settlement agreement?
Yes, unless the agreement states that it is removed or modified.

2. Can I have my non-compete clause lapse?
Yes, you can negotiate this or have it limited.

3. What happens if I work for a competitor anyway?
Then you risk a fine or legal proceedings.

4. Do I receive compensation for a non-compete clause?
That is possible, especially if the clause seriously hinders you.

5. Does a lawyer help with this?
Yes, a lawyer can negotiate on removing, limiting or compensating the clause.


Why Arslan Advocaten?

  • Specialised in employment law and dismissal

  • Experience with negotiations on non-compete and non-solicitation clauses

  • Often achieve a more favourable outcome or additional compensation

  • Guidance in disputes about violation of the clause


Conclusion

A non-compete clause can seriously limit your career after dismissal. That is why it is crucial to discuss this point when dealing with a settlement agreement. Whether you want to remove, limit or compensate it: negotiating almost always pays off.

Frequently asked questions

Wat zijn mijn rechten bij ontslag?
Bij ontslag heeft u mogelijk recht op een transitievergoeding, een correcte opzegtermijn en in sommige gevallen een billijke vergoeding. Teken nooit zomaar een vaststellingsovereenkomst zonder juridisch advies.
Kan mijn werkgever mij zomaar ontslaan?
Nee, uw werkgever moet een geldige reden hebben en de juiste procedure volgen. Bij een vast contract is toestemming van het UWV of de kantonrechter vereist, tenzij u instemt met een vaststellingsovereenkomst.
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