High penalty non-compete clause? The judge limits the fine
Competition clause fines can add up enormously. Article 6:94 of the Dutch Civil Code gives the court the authority to mitigate a contractual penalty. The judge sometimes intervenes firmly.
What was going on?
This is an employee working at a demolition company specializing in asbestos removal. That is a lucrative market, so we have been able to read the past months in the media. The professional association of asbestos removers has been allowed by the government to develop its own safety standards. The result is that a great many safety regulations apply, and a closed market has emerged and associated high remediation costs. Sometimes even very high costs. Parliamentary questions were asked about this before the summer because social housing is now faced with clean-up costs of sometimes tens of millions, whereby the question is whether part of the safety regulations is necessary and does not unnecessarily increase the costs. In other words, a competitive market in which about staff personnel is also fought.
After 1.5 years of employment, the employee terminates his employment and joins a competitor. The employee’s salary is limited, namely € 2.1.66.35 gross per month, but the penalty clause in his employment contract is not limited. That clause determines a fine of € 5,000 for the violation and € 2,500 for each day that the violation continues. At the time of the judgment, the fine is € 892,500 according to the court’s calculation.
Judge decision
The court rules that the non-competition clause is valid and rejects the request for moderation of the effect or cancellation. However, the penalty has increased enormously and is no longer reasonable. The judge will therefore moderate the penalty. With reference to a decision of the Supreme Court of 16 February 2018 (ECLI: NL: HR: 2018: 207), the court states that it may only intervene if the penalty clause leads to an excessive and unacceptable result in the given circumstances. The court must thereby pay attention to the relationship between the actual damage and the amount of the fine, the nature of the agreement, and the content of the clause and the circumstances of the case. Taking all this into account and considering it, the court finds that the contractual fine must be reduced to € 4,000. The court is of the opinion that this also sends a clear signal to employees not to act contrary to their non-competition clause in comparable circumstances.
What does this teach us?
This judgment makes it clear that a competition clause must be taken seriously in an employment contract. Sometimes the thoughts about this are to light-hearted, such as “will come loose” or “the judge will set it aside”. However, the judge is reluctant to set aside agreements made by the parties in better times. Agreement is agreement, the judge finds. The court does, however, have a wide authority to correct a very unreasonable outcome and the court also makes use of this. The judge is supported in this by a ruling of the Supreme Court of 2018.
Two recommendations
- Employers should therefore take into account the fact that the amount of the fine in an employment contract with a new employee should not be to high. After all, when it comes down to it, the judge can mitigate an unreasonable outcome, and then the question is what remains of the original contractual fine;
- Employees who are confronted with a very high fine would do well to have it investigated whether there are no good grounds for serious mitigation. The judge has a great deal of freedom.
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