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Restrictive covenants

Published on : 29/04/2024 29 April Apr 04 2024
Newsletter / Do’s and Dont’s
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In France, a post-termination restrictive covenant must meet 5 conditions:
1. the company has a proprietary interest to protect that renders such type of clause indispensable
2. it must be limited in time
3. it must be limited in geographic scope
4. it must be limited to a specific activity
5. it must give rise to compensation (with many collective bargaining agreements imposing certain  mandatory amounts)

It is not possible for an employer to unilaterally waive the non-compete clause upon notification of dismissal except when this is allowed under the applicable collective bargaining agreement and was provided for in the employment contract.

In case of litigation, the validity of the covenant will depend on its scope and judges cannot “blue-pencil” the covenant (i.e. decide that the covenant will apply as they judge reasonable). 

In a ruling dated January 24th, 2024, the French Supreme Court confirmed that if an ex-employee breaches his restrictive covenant and then starts respecting it again, the company is no longer required to pay any further compensation. 

In case of violation, the former employer can claim damages for loss sustained or apply a penalty clause if this is included in the employment contract. However, judges can decide to reduce the amount of the penalty clause.

DO
  • Check if the collective bargaining agreement which automatically applies to your company’s activity provides for any special terms with regards restrictive covenants 
  • Include a waiver option in case of termination and a reasonable penalty clause, if possible
  • Keep track of ex-employees’ employment status to ensure they are not violating their restrictive covenant

DON'T
  • Impose restrictive covenants in all employment contracts regardless of employees’ roles and responsibilities
  • Forget to regularly check if restrictive covenants still provide for the proper scope when employees change jobs within the company
  • Forget to check the terms of the restrictive covenant when an employee leaves the company
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