Restrictive covenants are aimed at protecting the company's economic interests for a short period of time after the termination of the employment relationship.
While validity conditions apply to non-compete covenants, restrictive covenants in general must be essential to the protection of the legitimate interests of the company.
GENERAL PRINCIPLES
During the employment relationship, employees are naturally required not to compete with their employer or act in a way that would be detrimental to its commercial interests, based on their loyalty duty. Restrictive covenants can protect such interests once the employment relationship is over.
Given that restrictive covenants hinder the employee's fundamental right to carry out a professional activity, judges tend to interpret their validity conditions rather strictly and have the power to adapt some of their features (e.g., compensation level, geographical scope) to make them compliant.
NON-COMPETITION
To be valid, a non-competition clause must comply with all the following conditions prescribed by French case-law. The clause must:
- Be specified contractually between the parties;
- Be indispensable for the protection of the legitimate interests of the business given the specific features of the employee's job;
- Be limited in time;
- Have a limited geographical scope of application – clauses applicable worldwide are unlawful; and
- Include the payment of a determinable financial compensation to the employee, proportionate to the scope of application and to the duration of the restriction.
In summary, the rationale behind these validity conditions is to ensure that the employee's freedom to work is not unlawfully and/or disproportionately limited by the employer.
Non-competition clauses are usually limited to 12 months and to one or two countries, for a compensation payment amounting at least to one-third of the employee's average monthly salary.
Contractual conditions may only be more favourable to the employee than those (if any) of the applicable industry-wide collective bargaining agreement.
Even when a non-competition clause is mentioned in an employment contract, the employer may decide to waive its application subject to giving appropriate notice to the employee. In such a case, no financial compensation is due.
NON-SERVICE OR NON-DEALING
Such covenants do not exist under French law. They would qualify either as non-compete or non-solicitation clauses.
NON-SOLICITATION
In France, non-solicitation clauses can refer to non-solicitation of clients or to non-solicitation of staff.
NON-SOLICITATION OF CLIENTS
Clauses that prevent former employees from interacting and/or dealing directly or indirectly with the company's clients are deemed non-competition covenants which, to be valid, must comply with the conditions outlined above.
In contrast, contracts with clients can prevent them from contacting the company's employees, even though said employees have left the company.
NON-SOLICITATION OF STAFF
The validity of non-solicitation of staff clauses is not subject to specific rules, and French law does not impose the payment of any financial compensation in consideration for its application.
Employment contracts may therefore provide that, for a specific duration following the termination of employment (12 months is quite standard), the employee undertakes not to hire, directly or indirectly, any staff member of their former employer. Failure to comply with such a covenant may then result in the payment of a contractual indemnity to the company. While this type of covenant may have a (psychological) deterrent effect, its real efficiency is, in practice, more dubious.
Indeed, employees are free to resign and join any company they see fit (unless they are bound by a non-competition clause). Thus, the pivotal issue would be to irrefutably prove that an employee's decision to resign and join the company where a former colleague has been hired is the result of this former employee's violation of their non-solicitation clause. In addition, current employees (who are therefore third parties to the non-solicitation clause) could claim damages since such clause effectively prevents them from being hired by the company of their choice.
However, if, in addition to staff poaching, the former employee also obtains confidential information or clients, the company could bring an action for unfair competition against its former employee (or their new employer). Ahead of such action, and if it has a legitimate reason to preserve or establish evidence of facts on which the resolution of the dispute may depend, the company can:
- request an injunction in summary proceedings to investigate the former employee's devices without their consent; or
- go with a bailiff to the former's employee new company and obtain the material evidence necessary to prove the unfair competition.
ON THE HORIZON
The French legislator has always left judges to define the frameworks of restrictive covenants and there is no sign of this changing in the near future.
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