10.4 Non-compete clause

A non-compete clause does not become invalid as a result of the employer’s bankruptcy, as has been stated in chapter 5. However, the employment relationship does change drastically as a result of the bankruptcy. It depends on the circumstances of the case whether a clause’s impact increased in such a way that, according to the so-called 'AVM-judgments', it can be stated that the employment relationship has changed to such a significant extent that the clause loses its validity and should have been agreed upon in writing again. This involves a weighing of interests that is closely related to the other possibility to influence the effect of a non-compete clause after an employer’s bankruptcy, namely making a request on the basis of article 7:653 paragraph 3 of the Civil Code, whereby the court is requested to partially or fully cancel the stipulation in connection with more compelling interests of the employee. The difference between both ‘deterioration options’ is that the first (weighing of interest, the 'AVM-option') can be filed as a defence in a procedure, while for the second (article 7:653 paragraph 3 of the Civil Code) option, the procedural initiative has to be taken by the employee.

The current legislation, elaborated in case law, is unnecessarily complicated and leads to (legal) uncertainty. It is ready for (more) clarity, also because of the numerous other potential complications (for example in case of a nullification of the bankruptcy order, or in the application of article 7:653 paragraph 3 of the Civil Code with its expanding scope, as well as in the application of paragraph 5 with its possibility to award a payment based on the ground of fairness to the tied former employee). That is why a change of rules is appropriate.

The legislation proposal from 2001 as discussed, provided for a relatively rigorous approach: the forfeiting of the non-complete clause in case of bankruptcy of the employer. I consider this a bridge too far and therefore not desirable. After all, actual and fair interests can exist on the part of the trustee in bankruptcy to maintain the clause, mitigated or otherwise, for example in favour of the highest possible proceeds for the creditors and for the preservation of jobs in connection with the relaunch of (part of) the company.

The Kortmann Committee’s proposal of the Preliminary Draft of the Insolvency Act offers a more well-considered approach, which essentially means that the non-compete clause lapses, but a trustee in bankruptcy can still request the delegated judge to declare the non-compete clause applicable because of special interests of the employer.

Elaborating on that, I think the following regulation should be included in the Bankruptcy Act, in a new article following article 40:

This is explicitly in line with article 3.4.4 of the preliminary draft. The only difference being that not the delegated judge, but the sub district court judge is competent to rule on this. In the first place, this is in line with the system of article 7:653 of the Civil Code (in which paragraph 3 already gives authority to the (sub district court) judge to rule over a moderation or to declare the clause inoperable). Moreover, this way provides for a proper, careful judicial process (including application of the principle of hearing both sides of the argument and the possibility of appeal and appeal in cassation). Presumably, this way the threshold for the trustee in bankruptcy will also be raised compared to when the delegated judge gives the judgment, because in general the trustee in bankruptcy already maintains contact with said judge.

The weighing of interest stays intact after the bankruptcy order, however the trustee in bankruptcy is expected to only put it forward in a limited number of cases, namely the cases in which the trustee in bankruptcy considers the interests compelling enough to bring the case before the court (with the authorization of the delegated judge).