29 Jul Non-competition clause: exceeding the authorised duration possible ?

In a decision of 23 January 2015, the Supreme Court ruled on a discussion about non-competition clauses. Such a non-competition clause is often stipulated in contracts related to assets purchase, licenses, management contracts,…

If a non-competition clause is stipulated in a contract, vigilance is recommended for the drafting of the clause, especially concerning the duration and the territorial and material scope. A non-competition clause however limits the freedom of entrepreneurship, which is stipulated in article II.2 Code of Economic law. Given that this freedom of entrepreneurship has a fundamental value in our legal system, this freedom consequently affects the public order. If a non-competition clause is too broad, it is sanctioned by nullity.

Already in a decision of 3 February 1971 this point of view was confirmed by the Supreme Court. The Court ruled that a non-competition clause which is null and void, cannot be reduced and subsequently the clause as a whole is absolutely null and void. This harsh position of the Supreme Court was met by actual practice by means of stipulating severability clauses in contracts. Those severability clauses mitigate the effects the non-competition clause. They provide for that, if one or more provisions of this agreement is found to be invalid, illegal or unenforceable, in whole or in part, the remainder of any such provision and of this agreement shall not be affected and shall continue in full force and effect as if such an invalid, illegal or unenforceable provision had never been contained herein. Moreover, such clause also provide for that if the parties decide to amend the invalid, illegal or unenforceable provision(s) or any part thereof and/or agree on a new provision, they should take care that the new or amended provision embodies as closely as possible the purpose of the invalid, illegal or unenforceable provision(s).

In its decision of 23 January 2015, the Supreme Court revoked the decision of the Court of Appeal of Ghent. The Court of Appeal had refused to temper a non-competition clause with a duration of 17 years; subsequently the clause was declared absolutely null and void (cfr. decision of 3 February 1971).

This interpretation was revoked by the Supreme Court which decided that the intentions of the contract parties prevail. The Supreme Court declares that the nullity of the clause should be limited in so far that it is legally permitted.

Moreover, the Supreme Court decided that the severability clause should be accepted, so the non-competition clause is limited for the duration which is legally permitted. Conclusion: it is recommended for a contract with a non-competition clause to stipulate a clause that states that provisions which would be (partly or completely) null and void, remain to exist in so far that this was legally permitted.

Please contact Jonas DERYCKERE (Jonas.deryckere@cairnlegal.be) for more information.

Sincerely,

Partners Frédéric de Patoul | Frank Weinand | Didier Chaval | Bernard Vandenkerckhove | Carl Vander Espt | Arnaud Massart | Guillaume Rue | Jonas Deryckere

Associates Dorothée Cardon de Lichtbuer | Virginie Schoonheyt