In the light of the latest legal developments at our firm, we would like to remind you of a few rules concerning non-competition clauses, to avoid their validity being called into question once employees have left the company.

We have recently noted in various litigation cases that several of our clients were surprised to find that old non-competition clauses, which had not been updated, could potentially be null and void, leading to their non-application, even though the companies thought they were protected in this respect.

1. Conditions for the validity of non-competition clauses

For the record, a non-competition clause prohibits an employee, after termination of his employment contract, from engaging in any activity likely to be prejudicial to his former employer.

There is no reference to this clause in the French Labor Code, so it is advisable to refer to the case law of the Social Division of the French Supreme Court (Cour de cassation) to determine the rules, or even to industry-level collective agreements, which may sometimes define the rules.

This is why it is necessary to understand the case law surrounding the conditions of legality of such a clause, which by its very nature restricts a fundamental freedom protected by French law and the Constitution, namely the freedom to work.

The first condition of validity is that the clause must be indispensable to the protection of the company's legitimate interests.

The notion of specific know-how on the one hand, and the prevention of customer misappropriation on the other, are thus retained.

 In addition, let us remind you that: 

• The clause must be limited in space, which refers not only to an assessment of the clause's geographical scope, but also to the need to verify whether its wording makes it impossible to carry out one's activity in view of one's training, knowledge and professional experience;
• The clause must be limited in time, and from this point of view, it is agreed that a duration of up to 2 years may be perfectly fair;
• The clause must be limited to the specific nature of the employee's job;
•  The non-competition clause must include payment, which must normally be provided for in the clause itself, unless it is fixed by a collective agreement to which the employee's contract expressly refers. 

2. Frequently asked questions about non-competition clauses 

The non-competition clause enables the company to protect itself, without preventing the employee from finding a suitable job. 

We note, however, that the following questions are the most frequently asked by employers. 

What level of financial compensation should be offered? 

Case law recognizes that financial compensation cannot generally be less than 20%, which refers to the notion of “derisory compensation”.

Nevertheless, we note that in view of the impact on employees' career development possibilities, they will only agree to sign a non-competition clause if the rate of remuneration generally fluctuates between 20% and 60%, depending on the level of responsibility within the company. 

Can a non-competition clause be waived?

This question can often lead to confusion. 

To avoid any difficulties, the non-competition clause must be expressly mentioned in the clause itself, since the possibility for the employer to be released from the performance of the clause, and therefore from payment of the financial compensation, must be contractually provided for. 

Otherwise, this would constitute a unilateral modification of the contract by the employer, which is not accepted.

It is imperative to comply with the formalities laid down in the employment contract for this purpose (period for giving notice of termination and form) to avoid being bound by the clause and therefore having to pay compensation.

What should be done if a former employee does not respect the clause? 

This is the question that led us to propose this theme in this trend news item, given the cases we currently have to deal with.

An employer faced with an employee who has joined a competitor's company in defiance of the clause to which he was bound, and for which he is paid every month, has several options:

• Give formal notice to the employee and his new employer to put an end to the situation with our competitors and terminate the employment contract.

• Bringing the matter before the Labour Court (Conseil de prud'hommes) in summary proceedings to obtain the indemnity often provided for in the employment contract against the employee, even if the judge retains the option of reducing the amount of the indemnity provided for in the contract, considering that in French law this is what is known as a penalty clause, the amount of which may be assessed on a case-by-case basis.

• Bringing an action against the new employer to obtain the termination of the employment contract under penalty.

This is without prejudice to possible actions for unfair competition, which may be brought if the company has suffered real damage as a result of its former employee's activity with a competitor, notably in the form of misappropriation of customers or contracts in progress. 

Our firm remains at your disposal should you be confronted with one of these situations, which would require swift and immediate action to protect your interests.