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Non-compete clauses

Published on : 04/07/2022 04 July Jul 07 2022
Newsletter / Do’s and Dont’s

Before introducing a non-compete clause

DO: keep in mind that non-compete clauses only apply after the employment relationship has ended. Whilst the employment contract is being performed, the employee is bound by a duty of loyalty which prohibits competition against the company.

DO: ensure that under French law the non-compete clause will be compliant with the following conditions: 

- it is essential for the protection of the company’s legitimate interests (because such a clause directly hinders one’s freedom to work),

- it is limited both in time (usually 6 months to a year, 2 years at most) and in space (usually a few regions in France are covered, more rarely the entire French territory or even abroad),

- the specific features of the employee’s job have been taken into account, 

- financial compensation is included. This compensation is referred to as a “non-compete indemnity” and cannot be a negligible amount of money. Case law generally considers that 1/3rd (33%) of the employee’s monthly wages is a minimum.

When drafting the non-compete clause

DO: include the non-compete clause in writing, either in the employment contract itself if the covenant is agreed upon at the time of hiring or, if not, in a subsequent addendum to the employment contract. 

DO: ensure that you have gathered your employee’s express consent by having them sign the contract or addendum. 

DO: word the clause very carefully and precisely as in case of conflict, judges will interpret it strictly and exclude anything that was not expressly agreed upon by the parties. 

Upon termination of the employment contract

DO: plan ahead. Do you want the non-compete clause to be enforced or are you indifferent to your employee’s future endeavours and would rather not have to pay the compensation? 

Depending on the answer to that question:

- DO pay, in monthly instalments (unless otherwise specified) during the entire length of the covenant, the contractual compensation if you want the non-compete clause to apply.  

- DO note that the indemnity is construed as wages and therefore triggers surcharge for paid leave and social security contributions and is taxable, which makes it quite expensive.
 
- DON’T think you can pay the non-compete indemnity before termination of the employment contract. If you do so, you will not be entitled to claim your money back as those sums will be construed as additional wages.

- DO waive the non-compete clause within the timeframe provided for by the clause (which is usually only a short period of time) if you do not want the non-compete clause to be enforceable. 

The employer may only unilaterally waive the non-compete clause upon termination of the employment contract. Whilst the contract is being performed, both parties must expressly agree to withdraw the covenant. 

In any case, and at every stage of the process

DO: carefully and constantly refer to the applicable collective bargaining agreement (CBA). Oftentimes, CBAs will include provisions governing non-compete clauses which must be complied with in order for said clauses to be considered valid and enforceable. 

Such CBA provisions may regulate a variety of topics such as which workers’ employment contracts may contain this type of covenant, the timeframe during which the non-compete obligation must be waived, the non-compete indemnity amount…
 
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