The Belgian Court of Cassation authorizes the judge to temper the effects of a non-competition clause that is contrary to the public order so that it must no longer be automatically declared null. The condition is that this must be allowed in the contract.
Imposing a prohibition of competition on the counterparty pursuant to a commercial cooperation agreement, a management contract, an acquisition contract and others, is an important element for the protection of know-how and customers or for the protection of an investment. The contractual restriction of competition is therefore regularly the subject of tough negotiations.
The non-competition clause is still one of the preferred mechanisms used to protect know-how. The legal options to protect know-how and customers are indeed very limited. If know-how or commercial secrets cannot be protected by intellectual property rights (such as patents, copyright and designs), the concerned party must be protected with confidentiality agreements and non-competition clauses.
However, the discussion does not limit itself to commercial negotiations. The non-competition clause also poses legal issues.
The general principle of the market economy teaches us that the freedom of trade pertains to the public order. This principle was already established in the Allarde Decree of 2-17 March 1791 and was recently included in articles II.3 and II.4 of the Belgian Code of Economic Law. Contractual exceptions to public order rules are generally not allowed.
The necessity and possibility to restrain the general principle of freedom of competition has nevertheless been acknowledged by Belgian law since a number of years. The proper functioning of the free market requires that some exceptions are allowed.
The statutory regulation of anti-competitive agreements is limited to the provisions in the context of competition law, labor law and other contracts that are specifically regulated (such as the commercial agency contract).
With regards to the contractual restrictions of competition included in the numerous contracts that are not explicitly regulated, the case law has established criteria in order to determine their validity. The non-competition clauses are valid only if they are sufficiently limited (i) in time, (ii) in space, (iii) with regards to the activity. Furthermore, the party in favor of which the clause is drafted must have a legitimate and sufficient interest to impose the restriction.
The detailed review of these conditions gives way to discussions in numerous cases and is regularly submitted to the appreciation of the judges. The latter base their evaluation on “the specific circumstances of the case”; it is therefore generally impossible to predict the Court’s decision. Ensuring the legal certainty of the validity of such a clause is therefore crucial, but often impossible. However, this review is very important: if the Court concludes that the restrictions are unreasonable (for example, the duration of the prohibition of competition is too long), the Court must declare the clause null. Traditionally, we indeed consider that the judge does not have the possibility to temper the non-competition clause. The judge must indeed either declare the clause valid or invalid.
The highest judicial body in Belgium, the Court of Cassation, rendered a revolutionary decision on 23 January 2015 with regards to the consequences of the violation of the conditions of validity. The Court judged that the judge may declare a non-competition clause partially null and restrain it within the limits that are legally allowed. However, the judge may only pronounce this partial annulment if this corresponds to the will of the parties.
The Court may, for example, if it considers that the non-competition clause is insufficiently limited in time, determine itself what would constitute a reasonable period and in this way maintain the effect of the non-competition while reducing it to an acceptable time period.
However, this takes place on condition that the parties included a clause in their contract indicating that “if the contractual provisions are declared null or invalid, these provisions remain nevertheless binding for the part that is legally allowed”.
With this decision, the highest Belgian jurisdiction puts an end to the uncertainty stemming from the reasonable character test of the conditions of validity of the non-competition clauses