Non-competition clauses: should using sledgehammers to crack nuts be allowed?

The Belgian High Court seems to be allowing for the severability of non-competition clauses. Instead of completely setting aside an invalid non-competition clause, judges can therefore keep the clause and reduce it to the duration (or scope) that is reasonably allowed. It remains to be seen to what extent the High Court's decision applies to non-competition clauses that infringe (European) competition law.

Non-competition clauses can limit the freedom of trade. They must therefore, according to long-standing Belgian case law, be reasonably limited in duration, material and geographical scope. Up until now, case law completely set aside any clause that was not reasonably limited. This nullity was partial (limited to the clause and in principle without any impact on the entire agreement), but it did affect the entire non-competition clause.

The Belgian High Court (Cour de Cassation/Hof van Cassatie) has now ruled that a non-competition clause in a transfer of business agreement that was not ‘reasonably’ limited in time (the clause had a duration of 18 years) is not per se null, but can be restricted by the judge to the duration that would be deemed appropriate, if parties have included such possibility in the contract (e.g. by way of a boilerplate severability clause).

Parties should thus include a very broad non-competition clause together with a severability clause stipulating that in case a (non-competition) clause is deemed invalid because its scope is too wide, the clause remains valid but shall be limited to an acceptable scope.

It will, in the first instance, not always be easy for judges to decide what the acceptable duration (or scope) of a non-competition clause should be.

The million-dollar question, however, is whether this important decision can be transposed to non-competition clauses in, for example, distribution agreements that go beyond the limits imposed by (European) competition law. The European Court considers non-competition clauses that violate article 101 section 2 TFEU null and void as of right and retroactively. This nullity is absolute. Also, block exemption Regulation 330/2010 clearly indicates that an exluded restriction (e.g. a non-competition clause going beyond the five-year limit or one year post-contractual limit) is not exempt and must be set aside. There seems to be little room for severability in the clause.

The Dutch High Court (Hoge Raad) therefore took an opposite view on the question. It (rightfully) points out that allowing a reconversion of an invalid non-competition clause entirely removes the deterrent effect of a nullity sanction. Why should you try to abide by competition law if the only sanction of too broad a non-competition clause is that it is brought back to the maximum allowed scope?