Non-Competition Clause Not Mentioned in Settlement Agreement - Has It Lapsed?
A discussion of the judgment of the Court of Appeal of
Amsterdam, 28 April 2009 LJN: BJ2741
The Facts in the Judgment
An employee had been employed with an employer as a salesman
since 2000. His employment agreement contained, among other things,
a non-competition clause, a confidentiality clause and a penalty
clause. When the employee became disabled, the employer and the
employee decided to terminate the employment agreement by mutual
consent. Their arrangements were set out in a settlement agreement,
in which the confidentiality clause was included once again. The
employer deliberately avoided to mention the non-competition
clause, in order to prevent discussions. As a result, the
non-competition clause was not repeated in the settlement
agreement. Furthermore, the parties granted each other final
discharge. Shortly after the employment agreement had ended, the
employee started working for the direct competitor of his former
employer. The employer wanted to keep the employee to his
non-competition clause. In reaction to this, the employee applied
to the Subdistrict Court with the request to declare that the
non-competition clause was no longer in force. The Subdistrict
Court allowed the employee's claims. The employer, however, was
of the opinion that a non-competition clause does not lapse when a
settlement agreement is signed, and he took the case to the Court
of Appeal.
The Judgment of the Court of Appeal
In the opinion of the Court of Appeal, the employee could have
understood, considering the wording of the termination agreement
and the other circumstances of the case, that the parties fully
said farewell to each other and that this implied that the employer
would not be able or allowed anymore to rely on the non-competition
clause. Furthermore, the settlement agreement repeated that the
final discharge was meant to be a legal and actual farewell between
the parties, also with regard to their possible rights and
obligations. The Court of Appeal held that in view of this choice
of words, it was less obvious that the employer could still rely on
the non-competition clause from the employment agreement, because
in that case the parties would not have said farewell in a legal
and actual sense. The Court of Appeal considered it unlikely that
the termination agreement exclusively concerned a financial
settlement, as the employer had argued, since the confidentiality
clause had been repeated in the termination agreement, and it had
also been agreed that the employer would prepare a testimonial.
Thus, the termination agreement contained not only financial
provisions. The Court of Appeal further referred to the fact that
the employee was disabled and had no legal assistance. All these
circumstances carried with them that the employer, according to the
Court of Appeal, should have prevented the possibility of a lack of
clarity arising as to what the final discharge set out in the
settlement agreement covered or did not cover. The intentional
omission of the non-competition clause in order to 'let
sleeping dogs lie' is for the account and risk of the
employer.
Tips:
- In the event of a termination of an employment agreement
with mutual consent, against final discharge, the employer will
have to make it clear whether he wishes to keep the employee to
a non-competition clause.
- If the settlement agreement includes a final discharge and
nothing is mentioned about the non-competition clause, this may
lead to a situation where the employer can no longer rely on a
non-competition clause.