Mitigation of non-compete clauses is possible

Submitted by Thomas Baudewijn on January 15, 2016
Binding contract

In two remarkable judgments the Court of Cassation has ruled that courts can mitigate excessive non-compete clauses by only declaring the excessive part as void and null so the remaining part can survive. This breaks with the viewpoint that these clauses are a matter of all or nothing, meaning they are either valid in their entirety or they are not.

One of the big principles our economic law is based on is the freedom of competition that can be found in article II.3 of the economic code. This principle is so important it belongs to the public order and is considered to be one of the corner stones of the law.

That being said parties can still draft non-compete clauses, provided that they can be deemed to be reasonable. More in particular that means such clause should be sufficiently limited in its scope, its duration and territory. Failing this the clause will clash with the principle of freedom of competition and is sanctioned by nullity. This means the clause will be deemed to have never existed.

When drafting a contract that contain a non-compete clause, is was therefore important not to exaggerate with the severity. Indeed, a moderate but valid clause is worth more than a strict but void clause.

This now seems to be a thing of the past. In a first judgment of march 23, 2015 the Court of Cassation had to rule a verdict on the transfer of a business in which a non-compete clause was stipulated with a duration of 17 years and that was declared null and void by the Court of Appeal of Ghent.

The Court of Cassation however found that the nullity in its entirety was not correct. The agreement also contained a severability clause on the grounds of which a void clause should severed from the agreement that remains in full effect. This prevents the nullity of a clause to “infect” the rest of the contract. According to the Court this means that the clause was only void for the duration that was excessive. Therefore the sanction isn’t really the full nullity but rather a mitigation of the clause.

A couple of months later a second verdict followed on June 25, 2015 in which the Court of Cassation confirmed this point of view and even went a step further. It ruled that even in the absence of a severability clause the courts can mitigate non-compete clauses by nullifying the part that is excessive.

In practice this means legal practitioners will have to be a lot less cautious when drafting non-compete clauses. Moreover, this point of view seems to encourage the drafting of excessive clauses, since the courts will only be allowed to mitigate the excessive part and thus there’s nothing to lose. It remains to be seen how this could be beneficial.

It seems this theory could also be applied to other types of clauses, despite the fact that, strictly speaking, the law only provides the right to mitigate penalty clauses. At the same time that law was merely legalizing a common practice. It remains to be seems if the same will happen with non-compete clauses of whether the legislator will prevent this from happening.

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