08. Restrictive Covenants

Definition and Types of Restrictive Covenants

Post-termination restrictive covenants are fairly common in French employment contracts, especially for senior employees or those with access to confidential information, senior responsibilities or contact with the clientele. In principle, restrictive covenants must be justified by the nature of the duties to be performed and proportionate to the aim that is pursued.

Types of Restrictive Covenants

a. Non-compete clauses

A non-compete clause prohibits an employee from competing with his former employer after the termination of his contract. Under French employment law, the validity conditions of a non-compete clause were defined by case law. The clause must:

• be essential to preserve the legitimate interests of the company;
• be of limited duration;
• be geographically limited;
• take into account the specific features of the employee’s position;
• provide a financial compensation for the employee after the termination of the contract.

By reference to case law and CBAs, 30% to 50% of gross monthly remuneration is likely to be reasonable compensation for such restrictions. The compensation should be paid regardless of the grounds for termination (i.e. even in cases of dismissal).

b. Non-solicitation of customers

According to the article 1134 of the French Civil Code, an employee owes a duty of loyalty to his employer until the expiry of his employment contract and during any suspension of it.

After the termination of his contract, the employee recovers his freedom to work but is still subject to a prohibition of unfair competition with his former employer. For example, case law disapproves of customer poaching through denigration.

The French Supreme court has ruled that this is a distinct obligation from the non-compete clause and must be financially compensated as well.

c. Non-solicitation of employees

A clause of non-solicitation of employees usually prohibits employers from recruiting a competitor’s or supplier’s employees.

It could also refer to the interdiction for an employee to recruit his former colleagues after the termination of his employment contract.

Although a non-solicitation clause concluded between two companies is distinguished from the non-compete clause between the company and its employee, it nevertheless results in a limitation of the employee’s freedom to work, much as a non-compete clause.

The French Supreme Court concluded that this restriction to a fundamental freedom had to be compensated based on the harm incurred (Cass. soc. 2 March 2011, n° 09-40.547).

Enforcement of Restrictive Covenants – Process and Remedies

Under French law, restrictive covenants can be enforced in different ways depending on the situation:

• if the employee breaches the restrictive covenant, the former employer can issue a claim before the Labour Court in order to obtain an injunction to stop the employee from carrying out the activity. The former employer may also claim damages for the loss sustained. Instead of claiming damages, the employer may request the application of a penalty clause, if one is contained in the employment contract.
• if the employer breaches the restrictive covenant or if the clause is void, the employee may claim damages, if he has observed the provisions of the clause.
• if an employer knowingly hires an employee subject to a non-compete clause, the former employer has grounds for claiming damages against it.

Use and Limitations of Garden Leave

The notion of “garden leave” as such does not exist under French law. Upon termination of employment, the employer may release the employee from working during all or part of the notice period and pay him an indemnity in lieu of notice, or alternatively require the employee to work until the end of the notice period.

If the employee expressly requests to be released from his obligation to work during the notice period, and if the employer agrees to it, then the employer is not required to pay the employee and the employment contract may be terminated upon the employee effectively leaving the company.

The French Supreme Court ruled that the employee, who is not subject to a non-compete clause and who is on garden leave, may work with a competing company during his notice period (Cass. Soc., 6 May 2015, n° 14-11.001).