The legal context

In the context of intra-group mobility, it is common practice to transfer an employment contract from one company to another one within the same group. Usually, this transfer consists in the termination by mutual agreement between the employee and his/her initial employer followed by the conclusion of a new employment agreement with the new employer. This can also be achieved through a tripartite agreement between all the parties involved.

What happens when the employee’s initial employment contract includes a non-competition clause? If the employee cannot be sued for breach of the provision due to his new position within the group, is such clause re-activated upon termination of the employee’s contract with the new employer?

The facts

In a decision of the Supreme Court dated January 29, 2014, the employment contract of a business manager was transferred to an another company in the context of an intra-group mobility (his initial contract being terminated by common agreement). Both employment agreements included a non-competition undertaking. However, at the time of termination of the initial contract, the employer did not consider it necessary to waive the original non-competition undertaking. Upon termination of his employment contract with his second employer, the employee brought a claim before the employment court in order to claim payment of the financial compensation of the non-competition provision provided by the initial employment contract (financial consideration for non-competition provisions being a condition of validity of such clauses in France).

The Supreme Court’s decision

The Supreme Court held that the employee’s claim was perfectly legitimate, on the basis that the non-competition obligation had only been suspended during the execution of the second employment contract, and that the termination of such contract had re-activated such clause. Therefore, failure by the initial employer to have waived such clause allowed the employee to claim the corresponding financial compensation.

This decision has the merit of raising anew an issue which can easily be inadvertently disregarded. In theory, the initial non-competition clause could be waived upon the termination of the second employment contract but, in practice, it can prove to be impracticable as the initial employer is most often unaware of it (and may have completely forgotten the existence of the employee). Thus, the only practical recommendation is to waive the initial non-competition clause as soon as the first contract is terminated.

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