An employer paid dearly for an offer to buy out a non-compete clause!

In a recent matter before the Arnhem-Leeuwarden Appellate Court, an employer held a former employee to his non-compete clause. After the employee had terminated his employment contract, the employer offered to waive the non-compete clause in exchange for payment. The employee declined the offer and asked the court to annul the clause. The buy-out offer cost the employer dearly; according to the court, an offer like that negated the employer’s interest in enforcing a non-compete clause (Arnhem-Leeuwarden Appellate Court, October 31, 2023, ECLI:NL:GHARL:2023:9210).

The sub-district court annulled the non-compete clause
The employee was employed as a replacement equipment mechanic at a fire protection company. His employment contract contained a non-compete clause. After ten years, the employee quit his job to start working for another fire protection company as a fire extinguisher mechanic.

After the resignation, the employer made the employee an offer to waive the non-compete clause in exchange for payment. When the employee turned down the offer, the employer prohibited him from joining the competitor and asked him to confirm that he would refrain from doing so on pain of incurring the contractual penalties.

The sub-district court annulled the non-compete clause at the employee’s request. The employer appealed.

Appellate Court
The Appellate Court weighed up the employee’s interest in a free choice of employment and the employer’s interest in protecting its intangible assets. The Appellate Court held that the position of replacement equipment mechanic was not a commercial position and that the employer had not sufficiently argued that the employee’s move would put the employer at additional risk over and above normal market competition.

Moreover, according to the Appellate Court, the offer to buy out the non-compete clause was an indication that the employer was not so much concerned about preventing unlawful competition as obtaining compensation from its employees upon their resignation. Such an offer negated the employer’s interest in maintaining the non-compete clause and was also inconsistent with the principle of the employee’s right to a free choice of employment, the Appellate Court said.

The weighing up of interests turned out in favor of the employee and the Appellate Court upheld the annulment of the non-compete clause.

Conclusion
Employers beware! In an action to annul or enforce a non-compete clause, the court will include in its considerations whether an offer was made to waive the non-compete clause in exchange for payment. This is because the aim of a clause like this is not to prevent employees from terminating their employment contracts or to enrich the employer but rather to protect the employer’s intangible assets, i.e. goodwill and know-how.