In France the rules governing restraint of trade provisions in the context of an employment relationship have been established through case law. Generally speaking, restrictive covenants in an employment contract will only be considered enforceable by French courts if:
- it can be shown that the inclusion of the restriction protects a legitimate business interest; and
- the covenant is included only to the extent necessary to protect such legitimate interest.
A “legitimate business interest” may include the protection of trade secrets and confidential information, the protection of relationships with customers, prospective customers and suppliers, and the protection of the stability of the workforce. If the company cannot demonstrate that the covenant is aimed at the protection of a legitimate interest, the provision will not be valid.
Other factors that will be considered by French courts when assessing the enforceability of restrictive covenants include the nature of the business, the employee’s role within the organisation and his/her experience.
In practice, there are two different set of provisions which can be used by French employers:
- non compete / non solicitation of clients clauses: in addition to the conditions specified above, the scope of such clauses should be limited (in terms of activity, geographical area, length of time), and they should give rise to the payment of financial compensation to the former employee, usually paid on a monthly basis for the duration of the restriction (in practice, the amount generally ranges between 20% to 50% of the employee’s gross salary). If these conditions are not met, the employee can claim the payment of damages for the loss suffered due to being bound by an invalid non-compete / non solicitation of clients obligation;
- non solicitation of employees (non poaching) provisions are not subject to the additional requirements set for non compete clauses, but the employer must nevertheless demonstrate that it has a legitimate business interest for including such clauses in an employee’s contract.
French courts have been increasingly strict with respect to the enforceability of restrictive covenants. In 2002, the French Supreme Court held as a guiding principle that non competition clauses require the payment of a financial counterpart (prior to such decision, such payment was not considered compulsory, unless provided otherwise by the employee’s individual employment agreement or under the relevant collective bargaining agreements).
More recently, the courts have assimilated non solicitation of clients provisions to non competition clauses, and therefore, such provisions are unfortunately now subject to the same requirements as those relating to non competition clauses (particularly in terms of financial compensation).
At the current time, non poaching provisions are not subject to such additional requirements, but the risk that such provisions may be more strictly regulated in the future cannot be excluded.