Our long-standing readers will remember an important change to the way French courts treated non-compete clauses in an employee’s contract. There has now been a further development with regards restrictive covenants, albeit not altogether unexpected, at least insofar as those of us who share a passion for French employment law are concerned. In order to bring everyone up to date, we propose to revisit the 2002 decision of the French Supreme court (Cour de cassation), before explaining the implications of this latest decision.
As a matter of general French law, until 2002 non-competition clauses could be included in contracts of employment without the requirement for any additional payment. Certain collective bargaining agreements (which generally have force of law in France within each relevant business sector) did impose a requirement for the employer to pay compensation in return for the restrictive covenant, generally as a monthly payment calculated as a percentage of salary over the duration of the restriction but this was not a blanket rule. That was about to change however.
In three decisions handed down on 10 July 2002 (Salembier v. La Mondiale; Moline v MSAS Cargo International; Barbier v Maine Agri SA), the French Supreme court held that all clauses that imposed a non-compete obligation on an employee had to be accompanied by some financial consideration in order to compensate the employee for the restriction on his or her future employment.
Since this important decision, employment lawyers have been left speculating what exactly constitutes a non-competition undertaking as regards other forms of restrictive covenant. They have not been disappointed either. In another decision of the French Supreme court (20 December 2006), it was held that a clause purporting to restrict a former employee’s solicitation of actual customers or clients of the employer post-termination of employment, would also only be valid and enforceable if it was accompanied by some financial compensation.
The relevant clause in the above case, involving the major contract caterer, Sodexho, prohibited the employee, a chef, from working for customers of his employer within 130 kilometres (approximately 80 miles) of his former workplace and for a period of 2 years. Considering, presumably, by extension of the 2002 case law, that this prohibition in reality constituted a genuine restriction on the employee’s freedom of employment, the Court ordered the employer to pay €30,000 in compensation for the 2 year restriction.
Whilst case law in this area remains rare and judicial guidance as regards what may be an appropriate level of contractual compensation has not been given, one may refer to collective agreements currently in force in France which typically set the level of compensation at between 33% and 50% of the employee’s monthly salary.
This amount is also subject to employer’s and employee’s social security contributions, at rates which, for the former, can be as high as 45%.
It will be noted that relevant restrictions that do not provide for compensation are void, but there is also case law awarding damages to employees whose contracts contained a covenant that was so void, by reason of the employee’s (alleged) perception of nonetheless being bound.
So, the prudent position for the future is always to take advice on this relatively complex and diverse area, when issuing new contracts in France.
And for existing contracts? Attempt to agree amendments compensating non-competition covenants and, which failing, (with regret) notify employees that their covenant is void, no later than at termination of their contract.