Under French employment law, it is possible for an employer to subject the employee to a non-compete obligation after the termination of his/her employment as long as such obligation is necessary to protect the legitimate interests of the business, is limited in terms of time and geographical scope and takes into account the specificities of the employee’s duties. In addition, the non-compete obligation must give rise to a specific financial consideration to be paid to the employee after his/her actual departure.
In this context, is the employer entitled to stipulate that the financial consideration will vary, depending on the type of termination of the employment contract (resignation, dismissal, termination by mutual agreement, etc.)?
In a recent decision of the Supreme Court dated 9th April 2015, the employment contract of a certified public accountant stipulated that the financial consideration of his non-compete obligation amounted to 25% of his average remuneration in case of dismissal but was only set at 10% of such remuneration in case of resignation. After the termination of his contract by way of a mutual termination agreement (“rupture conventionnelle homologuée”), the employee filed a claim with the employment tribunal so as to obtain the payment of the financial consideration of the non-compete obligation stipulated in his employment contract.
The Court of Appeal found partly in favor of the employee and considered that, in entering into a mutual termination agreement, the employee did express his will to terminate his employment and should be paid the financial consideration applicable to the case of resignation. The Supreme Court reversed the decision of the appellate judges and held that the clause providing for a reduction to the financial consideration of a non-compete obligation for certain type of termination cannot be enforced against the employee. As a result, in this case, the amount of financial compensation applicable in case of resignation was realigned with the amount due in case of dismissal, and the former employer was ordered to pay the employee the enhanced financial consideration.
This decision serves only as a reminder of previous rulings which resulted in similar decisions and can only be approved in terms of legal reasoning. The rules governing non-compete undertakings are inherently linked to the restriction that such type of clause impose on the employee’s freedom to pursue a professional activity. Therefore, since the non-compete obligation is identical regardless of the reasons for termination, the subsequent financial compensation cannot be adapted according to the nature of the termination. Finally, it is to be noted that the consequence of a clause which is not compliant with such principle is not the nullity of the non-competition clause itself but rather the application of the highest amount of financial consideration provided, which therefore still entitles the employer to enforce application of the employee’s obligation not to compete with the activity of the employer.