The non-compete clause is defined as the clause in which the parties undertake not to compete with each other during or after the end of the cooperation. It protects both know-how and clientele.

The Federal Trade Commission (hereinafter: FTC) has issued a proposal declaring that non-compete clauses are an unfair method of competition. On January 5th, 2023, the FTC sought public's opinion on its proposal and the possible alternatives it has come up with. The Commission is considering prohibiting these clauses generally because they are anti-competitive and affect the free market.

However, don't these clauses have benefits? And what about freedom of contract? The pros and cons of such clauses are developed below.

According to proponents, the existence of non-compete clauses can be justified primarily by their legitimate nature. In a contractual relationship, knowledge, information and know-how will often be exchanged between the parties. Therefore, the party transferring knowledge to the other party will seek security so that the latter will not simply leave taking this knowledge along. In other words, non-compete agreements strike a balance between the two parties and their interests.

Proponents of non-compete clauses believe that the following is in line with this, specifically that if a party can simply leave taking knowledge, know-how and clientele along, the company will have less incentive to invest in both training and knowledge sharing. As a result, it might be less inclined to share crucial information within the contractual relationship. This implies the reduction of the working and productivity of the company in question.

Opponents of non-compete clauses, argue that more competition involves lower prices, more choice, more innovation and better quality products. Effects that cannot be underestimated. A key point is that know-how and knowledge in general are more widespread thanks to an open market, thus benefiting the public interest. Moreover, non-compete clauses prevent the creation of new companies that would then not be free to compete.

In addition, opponents argue that proponents' argument that non-compete clauses protect trade secrets does not take into account intellectual rights and non-disclosure agreements, which are precisely intended for that purpose.

Having set out the general arguments for and against non-compete agreements, the focus moves now to Belgian law. The non-compete clause is an exception to the general principle of law of freedom of trade and industry, already enshrined in 1971 in the Allarde Decree and now listed in Articles II.2 and 3 of the Code of Economic Law.

However, the non-compete clause cannot go too far. Thus, in 2017, the Court of Cassation  ruled that a non-compete clause may be considered excessive if it unreasonably restricts competition by object, territory or duration. Therefore, to be lawful, the clause must concern similar activities. In addition, the prohibition of competition should only concern places where the parties can provide real competition to each other and should in any case be limited to the territory where the contractual partner operates. Finally, the duration of the prohibition must be reasonable.

In line with the case-law of the Court of Cassation since 2015, unauthorised non-compete clauses can be moderated or partially terminated.

Moreover, the obligations arising from the important loyalty principle of Articles 5.71 and 5.73 of the new Civil Code imply that parties must fulfil their contractual obligations in good faith, which will often include that there cannot be competed. Non-competition clauses can prevent competition after the contract has been terminated, where the loyalty principle no longer applies.

Besides it, the Law of July 30th, 2018 on the protection of trade secrets provides a series of remedies that Belgian companies can invoke when their trade secrets are disseminated, stolen or used unlawfully.

From these considerations, it appears clearly that a balance must in fact be sought between freedom of trade and industry on the one hand and freedom of contract on the other. If freedom of trade and industry is preferred, it is justified to prohibit non-compete clauses. Conversely, if freedom of contract prevails, it is legitimate that parties can decide to include non-compete clauses in their contracts. 

The solution in Belgium seems to balance these two important freedoms. It is in fact possible to insert non-compete clauses, but only under certain conditions. The unlawful or excessive non-compete clause can then be moderated or partially terminated by the court.

Finally, the question arises as to whether it is appropriate nowadays to prohibit non-compete clauses in Belgian law, as proposed by the FTC. The answer seems to be no. In Belgium, both freedom of contract and freedom of trade and industry are fundamental. Prohibiting the insertion of non-compete clauses in contracts undermines the freedom of contract, while Article 5.14 of the new Civil Code foresees this. Nor should freedom of trade and industry be set aside, as it is an important general principle of law.

The current Belgian legislation does not necessarily tip the balance towards one of the two freedoms and for that purpose seems a good solution for now. Non-compete clauses can always be inserted in contracts, but only under certain strict conditions so as not to completely undermine the freedom of trade and industry.

Ultimately, it is the courts that play an important role in considering the legality of the clause.