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Some companies may include a non-competition clause in the employment contract. What does this clause commit to ? What happens if the employee does not respect it?
The interest of the company
The non-competition clause must be included in the collective agreement or in the employment contract. It is after leaving the company that the employee undertakes not to enter into competition with his former employer. This clause appears when the company has particular know-how or does not want its customers to be abused. The company must be likely to suffer real harm if the employee were to carry out his professional activity in a competing company. If the employer’s interest is not legitimate, judges can easily annul this clause.
A geographical limit
The geographic limit is mandatory in a non-competition clause. It can indicate the spatial limit within which the employee cannot compete with the employer: it can be a department or a region, or even a country. It differs depending on the type of activity concerned. The judges are very strict and also very attentive to the possibly abusive nature of the geographical limit.
An imposed duration
The non-competition clause must be limited in time. There is no legal duration, but in practice, this duration is often 2 years. The employee and the employer can negotiate it together. The judges control this duration and, if they find it excessive, they can reduce it.
What financial compensation?
This is an essential condition for the validity of the non-competition clause and the employer must pay compensation in exchange for this restriction. This compensation must be significant. It can be calculated on the employee’s half-yearly or annual salary, depending on the duration of the clause or the qualification of the employee. It also happens that this compensation is fixed in the collective agreement. Its payment occurs after termination of the contract because its purpose is to compensate the employee. In the absence of compensation or if it turns out to be insignificant, the clause is deemed null and void.
If the employee does not comply with the clause
The employee who does not respect the non-competition obligation must reimburse all of the financial compensation received in return for the clause. The former employer, but also the new employer, can attack the employee and demand damages for the damage suffered. If the employee has entered the service of a new employer, the latter will be required to dismiss him.
NB In a judgment of the Court of Cassation of May 16, 2012 (n°11-10760 PFB), the social chamber considers that the judge cannot declare the nullity of such a clause and, at the same time, order the employer to pay financial compensation.
In this case, an employee, having respected his non-competition obligation, demanded additional financial compensation from his former employer taking into account his variable remuneration.
The Court of Appeal first considered this clause to be void in view of the paltry consideration, then ordered the employer to pay the “correct” reassessed amount in the form of damages.
However, if such a clause is declared void by the judges, the financial compensation is no longer justified, whatever the amount. Only damages could be paid to the employee based on the damage suffered.
In the presence of a collective agreement, the amount of compensation should not have been reassessed because it is fixed by it (Cass. soc. May 5, 2010, no. 09-40710 D).
DAMY law firm , Nice, Non-competition clause, Updated 2022