In a judgment dated 17 December 2012, the Court of Appeal of Ghent ruled that a non-competition clause restraining a party from developing a competing business for a period of 17 years is null and void. Even when the parties explicitly provide that clauses exceeding the limitations imposed by law are not deemed to be null and void but are automatically reduced to the maximum permitted by law, such provision does not allow a court to mitigate a non-competition clause, according to the Court of Appeal. In a judgment dated 23 January 2015, the Court of Cassation ("Hof van Cassatie"/"Cour de Cassation") annulled the judgment of the Court of Appeal of Ghent, and thus confirmed the power of a court seised to mitigate such a non-competition clause.
Whereas, for employment agreements and commercial agency agreements, limitations of a non-competition clause are explicitly imposed by law, for other contracts (e.g. management agreements, consultancy agreements, acquisition agreements) no specific legislation applies. However, even in the absence of such legislation, non-competition clauses must be limited in time and geographical and business scope in order to be valid.
Notices on ancillary restraints adopted by the European Commission could serve as a guideline for this limitation. These provide that non-competition clauses are justified up to three years if both know-how and goodwill are transferred, and up to two years if only goodwill is transferred. The Commission also provided specific criteria with respect to the limitation of the geographical and business scope of a non-competition clause.
Imposing a non-competition clause without limitation in time and geographical and business scope is considered to be incompatible with the principle of free enterprise, which was laid down in the D'Allarde Decree, as recently integrated into articles II.3 and II.4 of the Economic Law Code. The principle of free enterprise is considered to be a rule of public order, and therefore any infringement leads to absolute invalidity of the relevant clause.
In an earlier decision, the Court of Cassation had confirmed that a non-competition clause in an employment agreement exceeding the maximum limitations imposed by law is null and void and cannot be mitigated by the court seised. However, the position of the Court of Cassation towards non-competition clauses, in respect of which no specific legislation applies, remained unclear.
In the case presented to the Court of Cassation which led to the judgment of 23 January 2015, the parties had agreed on a non-competition clause restraining the seller of a business from carrying on or developing a competing business for a period of 17 years. The Court of Appeal of Ghent ruled that the period was "extremely long" and that therefore the non-competition clause was null and void. The Court specified that such invalidity was absolute in the sense that a court seised could not mitigate a non-competition clause.
In its judgment of 23 January 2015, the Court of Cassation annulled the judgment of the Court of Appeal of Ghent, referring to the agreement made between the parties according to which clauses exceeding the limitations imposed by law are not deemed to be null and void but are automatically reduced to the maximum permitted by law. Hence, the court seised to assess the validity of a non-competition clause for which no specific legislation applies should mitigate the clause to the maximum permitted by law, provided that the parties had explicitly agreed that this should be done.