Actance Tribune
What's NEW under French Employment Law?
N° 7 – July 11, 2022
The non-competition clause
The non-competition clause prohibits the employee, following termination of the employment contract, from engaging in a competitive professional activity, on their own behalf or that of a new employer.
Today, a certain number of sectors are in a situation of full employment, leading employers to step up their efforts to retain the talents occupying their strategic and/or business positions.
In this context, the issue of the non-competition clause, its lawfulness and its implementation, is increasingly pertinent, and so therefore, is the litigation in the application of these clauses.
Indeed, insofar as such a clause infringes the fundamental principle of the right to pursue a professional activity freely, it must respect the balance between the protection of the employer’s interests and the freedom of employees.
Thus, to be enforceable, the non-competition clause must be expressly provided for in the employment contract and meet 5 cumulative conditions:
- Be essential to the protection of the legitimate interests of the company (protecting know-how, customer files, etc.);
- Be limited in time (the clause must define the duration of its application, subject to contractual provisions);
- Be limited in space (the clause must precisely determine the space in which competition is prohibited);
- Take into account the characteristics of the employee’s job (the clause must not prevent the employee from finding a job requiring their skills, general knowledge and professional experience);
- Provide for the payment of financial compensation (except for contractual provisions imposing minimum compensation, this must be set in proportion to the constraints imposed on the employee on a lump sum basis or as a percentage of the salary and is due regardless of the circumstances of the contract termination).
Failing compliance with any one of these conditions, the clause could be considered to be nul and void.
Furthermore, the employer can be released from their obligation to pay the non-competition indemnity to the employee, by waiving the benefit of the clause, under certain conditions. The option to waive must indeed:
- Be provided for in the employment contract;
- Be explicit, unequivocal, and notified individually to the employee;
- Intervene at the latest on the effective departure date of the employee or on the date fixed by agreement in the context of a contractual termination.
Should the employee breach their non-competition obligation, the employer is only obliged to pay the financial compensation for the period when the employee has actually complied with the clause. The employee therefore loses the benefit of the payment for the future and may be ordered to reimburse their former employer for payment unduly received.
Moreover, should the employee enter into competition against their former employer, the latter may take legal action for unfair competition against their former employee.
Finally, a penalty clause can be inserted in the employment contract as a deterrent and specify in advance the amount of the fixed compensation to be paid by the employee to their former employer should the former breach the non-competition clause.
The non-competition clause, only intended to apply after the termination of the employment contract, is separate from the duty of loyalty imposed on the employee while the contract applies.
The duty of loyalty prevents employees from committing any act contrary to the employer interests throughout the employment contract, including during periods of suspension of the contract (sick leave, maternity leave, paid leave, notice etc.).
Should the employee commit acts of competition against their employer, this would constitute an act contrary to the latter’s interest.
For example, employee breaches of their duty of loyalty could be:
- Creating a competing business;
- Diverting customers from their employer;
- Taking advantage of their functions to promote a subcontracting company of which they are the manager.
The breach of the duty of loyalty by the employee can justify a dismissal, depending on the nature of the alleged facts.
In the event of extremely serious misconduct, the employer may move for a dismissal for willful misconduct, but must demonstrate an intention to harm.
In such a case, the civil liability of the employee may be incurred and they may be ordered to pay damages to their former employer.
Internal Rules
In companies or establishments employing at least 50 employees, the establishment of internal rules (i.e. “Règlement Intérieur”) is compulsory.
The internal rules consist of a written document in which the employer exclusively states:
- Mandatory health and safety enforcement measures;
- The conditions under which employees may be obligated to participate, at the request of the employer, in the restoration of working conditions that protect the health and safety of employees, should they seem to be compromised;
- The general and permanent rules concerning discipline, and specifically the type and scale of the penalties that the employer can apply.
The internal rules also define the provisions concerning the rights of defence of employees and state the provisions covering moral and sexual harassment as well as sexist acts provided for by the French labour code.
Apart from these indications, the internal rules may not contain any other matter, even on an optional basis.
New legal provisions recently adopted concerning the protection of whistleblowers as well as sexual harassment imply that employers must modify their internal regulations to comply with the following elements:
- with regards to sexual harassment, its definition in the French labour code has been aligned with that of the penal code which includes remarks and behaviour with sexist connotations and which came into force on March 31, 2022. The definition of sexual harassment should already be included in the internal rules, which should already be updated.
- with regards to the protection of whistleblowers, from September 1, 2022, it will be mandatory for company internal regulations to mention the existence of the whistleblower protection system in order to ensure employees are informed about the subject.
Note that, a whistleblower is defined as one who reports or discloses, without direct financial compensation and in good faith, information relating to a crime, an offence, a threat or harm to general interest, a breach or an attempt to conceal a breach of an international commitment duly ratified or approved by France, of a unilateral act of an international organization taken on the basis of such a commitment, of European Union law, of law or regulations.
Companies must therefore update their internal rules concerning these two points.
The necessary update of the internal rules is an opportunity for companies to more broadly consider all the rules applicable within the company, and emanating in particular from the following documents:
- The internal memos;
- The ethics charter;
- The code of ethics.
Indeed, for these rules to be enforceable with regards to employees, they must be added to the internal regulations and therefore comply with the conditions of form and publication of the internal rules.
Failing to comply with this procedure, the employer cannot tackle any employee for their breaches of the obligations set out in these documents.
The internal regulations are subject to certain formalities when they are put in place or modified in order to be enforceable concerning employees:
