Redrawing the banking landscape: Obligations and opportunities for (former) employees?

The banking landscape is going to be transformed radically in the future in response to (amongst other things) the changing expectations of clients, new technology, new competitors and an evolving economy. In light of all this, a number of major banks announced that they were going to close or spin off some of their (smaller) regional branches. This is not only accompanied by dismissals, but also possible hiring by other financial players.

This newsflash is the first of three on this subject and concerns the position of (former) employees. A second newsflash discusses the situation of the independent (former) bank agents. The last newsflash focuses on what opportunities this generates for banks to expand their network.  

In principle there exists in Belgium freedom of labour, freedom of competition and freedom of industry. These principles are contained in the Economic Law Code of 28 February 2013. Nevertheless, the labour law includes a number of mechanisms that prevent a former employee from entering into (unfair) competition with his former employer.

A non-compete clause

A former employee is free to enter into competition with his former employer after the end of his employment, unless he is bound by a non-compete clause.

Non-compete clauses are strictly regulated by the Employment Contract Act of 1978. Along with a specific admissibility requirement depending on the level of the employee´s salary, the clause is subject to a number of validity conditions, which are prescribed on penalty of nullification:

• Relation to similar activities: only similar activities at a competing company can be prohibited, no general prohibition;
• Limited duration: maximum of 12 months;
• Geographically limited to Belgium;
• Lump-sum compensation equal to the gross salary corresponding to one-half of the duration (with the exception of the non-compete clause for sales representatives).

The clause has no effect during the first six months of employment or if the employment contract is terminated by the employer without an urgent cause, or by the employee because of an urgent cause on the part of the employer. The clause will thus come into play primarily in the event that the employee himself submits his resignation. 

For the sake of completeness, we note that one can depart from a number of these conditions (territory, duration and effect) in companies with an international field of activity or having their own research department (the so-called “divergent” non-compete clause).

If the clause is violated, the former employee is obliged to pay back the lump sum, plus the same amount on top of that as an additional compensation. Finally, an employer can waive the clause within 15 days after the end of the employment contract. In that case, the employer doesn´t owe any lump sum, but on the other hand must allow the employee to develop competitive activities.

Acts of unfair competition – confidentiality

In the absence of a (valid) non-compete clause, a former employee can enter into - fair - competition with his former employer, and he is free to canvas his clientele in an attempt to lure them away. After all, customers don´t “belong” to anyone . . .

Nevertheless, article 17, 3° of the Employment Contract Act prohibits an employee from engaging in unfair competition (or collaborating in it). Examples of this from the case-law always have to be judged as a function of the concrete circumstances:

• Defamation
• Providing erroneous information;
• Causing confusion with regard to who his employer is;
• Using confidential information and communicating it to third parties (e.g. customer lists); this concerns data of which the employee gains knowledge through the exercise of his position. In principle, mere possession of such information is not prohibited;
• Destabilisation attempts.

That the use of customer lists would automatically be unlawful must be tempered if the customer list can be assembled using publicly accessible data or data that one knows by heart. Moreover, it is well-established case-law that a former employee can freely use the knowledge, experience and skills that he acquired at his previous employer´s. The same applies for the trust that he has built up amongst the clientele of his earlier employer.

It is up to the former employer to demonstrate that its former employee is guilty of unfair competition and abuse of confidential information. Experience shows that meeting this burden of proof isn’t always easy. The mere fact that an employee could engage in acts of unfair competition, and thereby could use confidential information, does not constitute sufficient proof.

Conclusion: a former employee can and may, except in the event of a valid non-compete clause, after his employment relationship enter into competition with his former employer. For example, it is altogether possible for a bank employee to switch over to a different bank and then try to convince the persons whose wealth he managed earlier to switch over to his new employer. In so far as he does this in a fair manner and does not use any confidential information, he is free to engage in competition in this way.  

For more information on this topic, you can consult Sébastien van Damme (author) and Sara Cockx (author and unit head).