What about a non-compete clause in the event of wrongful termination by the beneficiary/client?
Can a client invoke the contractual non-compete clause after the unlawful termination of the agreement? In a recent decision, the Court of Appeal of Antwerp ruled that this is not the case.
Non-compete clauses in service agreements
Non-compete clauses, whereby the service provider undertakes not to engage in any competing activities, protect the client’s commercial interests in service agreements. In principle, the service provider may compete directly with the client, both during and after the termination of the agreement.
As an exception to the freedom of trade, a non-compete clause is evaluated in a strict manner. Among other things, it may not disproportionately restrict the freedom of trade and must not result in the service provider being unable to earn a reasonable living.
In the absence of general statutory provisions, case law has defined the criteria for the validity of non-compete clauses. A valid non-compete clause must meet the following conditions:
- restriction of prohibited activities: only activities that directly compete with those of the company invoking the clause may be excluded;
- restriction in time: the effect of the clause must be limited to what is necessary in light of the situation; and
- restriction in space: the effect of the clause must be limited to a reasonable and precisely defined region.
Whether the restrictions in terms of time, area or prohibited activities are too far-reaching must be assessed on a case-by-case basis. A court may rule that the non-compete clause is partially inapplicable, imposing additional restrictions in terms of time, area or prohibited activities.
What if the client terminates the agreement incorrectly?
In a remarkable judgment, the Court of Appeal of Antwerp decided that a non-compete clause could not take effect if the premature termination of the agreement was due to the client’s fault. Consequently, the service provider resumed his right to compete with the client, regardless of the non-compete clause. Although the decision was made in the context of a distribution agreement, it appears to be broadly applicable to service agreements.
Notwithstanding the foregoing, the assessment of a non-compete clause requires a case-by-case analysis, in which the specific circumstances of the termination must be taken into account. Previously, the Court of Cassation has clarified that a non-compete clause does not ‘always’ have to be disregarded if the agreement is terminated unlawfully by the beneficiary.
How can we help you?
As a law firm specialised in commercial law, we support companies with:
- drafting robust non-compete clauses; and
- conducting a risk analysis of the effectiveness of a non-compete clause in specific circumstances.
Would you like us to review the non-compete clause in your (standard) agreement(s), or do you have a specific conflict regarding its application? Feel free to reach out for an initial meeting. As commercial lawyers, we always consider the legal and commercial impact for your business.
Pieter-Jan Aerts
De Langhe Attorneys
