In addition to the requirement that the clause be set out in writing in the employment contract or an amendment thereto, the Cour de cassation has laid down four cumulative conditions of validity:
The work ban must be limited in time ;
and in space;
It must protect the legitimate interests of the company;
and provide for financial compensation (Cass. Soc. 10 July 2002 no. 00-45.135).
More specifically, this financial consideration must be sufficient and not derisory.
As its name indicates, the purpose of this financial consideration is to compensate for the limitation on the employee’s freedom to work, restricting his ability to seek employment.
What happens to the payment of this consideration when the non-competition prohibition is breached?
II. Payment of the financial consideration subject to compliance with the non-competition clause
When the employment contract is terminated, if the employee is not released from his non-competition obligation, he is, in principle, required to comply with the conditions set out therein.
Payment of the financial consideration is conditional upon compliance with the prohibition contained therein (Cass. Soc. 5 May 2004 no. 01-40.194).
An employee who breaches the non-competition clause cannot validly claim payment of the financial compensation.
The Court of Cassation recently reiterated that the right to financial compensation is not acquired, and that if an employee breaches his non-competition clause, he loses this compensation for the future.
Even if the breach is only temporary! (Cass. Soc. 24 January 2024 no. 22-20.926)
The judges’ position follows the logic of the very existence of this consideration. If the employee does not comply with the prohibition on work imposed by the non-competition clause, his freedom to work is no longer impaired and deserves to be compensated by the payment of this consideration.
But this is not the only risk to which the employee is exposed…
III. Multiple penalties for breach of the non-competition clause
In addition to the loss of the financial consideration for the future, in the event of a breach of the non-competition clause, the company is entitled to seek reimbursement of the sums paid in respect of the financial consideration for the entire period of the breach.
Thus, a company that realises after several months that its employee is not complying with the terms of the non-competition clause may, in addition to stopping payment of the consideration, request reimbursement from the day of the breach.
Provided that the company can prove the breach by means of objective and materially verifiable evidence.
However, the employee retains the financial compensation received in respect of the period prior to the breach of the prohibition (Cass. Soc. 18 February 2003 no. 01-40.194).
Finally, an employee’s breach of his non-competition clause may prove onerous, as the penalties relating to the financial consideration are not the only ones incurred.
The non-competition clause may include a penalty clause, providing for automatic payment of compensation to the company.
The injured company may then, in view of the damage it has suffered, seek damages, the cessation of the competing activity, or even take legal action against the employee’s new employer on the grounds of unfair competition.