- ARTICLE: How to properly draft a non-competition clause?
- IN-BRIEF : Unemployment reform : degression for high incomes from 1 November 2019
- SELECTED NEWSPAPER ARTICLES
How to properly draft a non-competition clause?
The purpose of a non-competition provision in a labour agreement, is to limit the employee’s right to work for a competing company after the end of his employment contract.
It is therefore a question of limiting the employee’s freedom of entrepreneurship and to work in order to protect the former employer against too brutal competition.
This is why this clause is the subject of extensive litigation, which has led the case law to build a strict regime that makes it possible to safeguard all the interests in question.
Moreover, social case law tends to extend the employee’s protection from the non-competition clause, as well as its conditions of validity, to other peripheral stipulations. This is the case, for example, of the non-poaching clause, by which the employee undertakes not to poach his former colleagues, or the non-solicitation clause and sometimes even the discretion clause.
However, it is the non-competition clause stricto sensu that we are focusing on for the purpose of this article.
Here are some drafting guidelines to make such a clause more secure.
The necessary preparatory steps for the implementation of a non-competition clause
Before starting to draft a non-competition clause, it is first necessary to consider the legitimate interest of the company in the clause.
In other words, the employer must consider whether the actions prohibited by the intended clause could actually cause him harm. If the answer to this question is no, then it is better not to include the said clause to avoid a cancellation.
By way of example, it is not clear that a bank has a legitimate interest in imposing a non compete clause on one of its cleaning agent prohibiting him from working for another bank at the end of his employment contract.
Once this point has been checked, it is advisable to refer to the conventional stipulations that often govern this type of clause.
Collective agreements, often the most recent, may thus provide for certain limitations for this type of obligations, which may relate to the employees concerned, or to the triple limitation mentioned below.
This is particularly the case for example, with the national collective agreement for employees in the building materials trade of 8 December 2015.
Collective agreements often also provide for the employer’s ability to waive the clause. It is therefore imperative to find out before inserting such a clause into the contract and to recall, in the clause, the waiver mechanism.
The triple limitation of the clause and the financial contribution
The non-competition clause must be subject to a threefold material, temporal and geographical limitation. Failing this, it may be reduced by the judge or, at worst, cancelled.
Unless these are precisely determined in the collective agreement, the assessment of the lawfulness of each of these points will ultimately be left to the judge.
compliance with these limits is not sufficient, as the said limits must also be proportionate to the legitimate interest to be protected.
The material limit is not always mentioned by the doctrine since it is quite similar to the notion of legitimate interest. However, it is essential to set the framework of the non-competition obligation in such a way as not to restrict the employee’s rights too significantly.
“Material limit” refers to the definition and limitation of the activity that is subject to the prohibition of competition. It is essential to clearly define which activity is prohibited, since without this definition the clause would amount to prohibiting the employee from any activity following the termination of the employment contract. The interest in a precise definition of the prohibited activity is all the more important when the tasks entrusted to the employee are complex and it is difficult for a neophyte to fully understand what the employee’s activity actually consists of.
Secondly, regarding the time limit, it should be pointed out that an obligation cannot, of course, be unlimited in time. In addition, the need to restrict the infringement of the employee’s rights requires that the obligation in question apply for a limited period.
Non-competition clauses are often limited to one year.
In addition to the employee’s rights, it should not be forgotten that the clause must provide for a financial compensation. Thus, the longer the duration of the obligation, the more expensive it is.
Finally, regarding the geographical boundary, it must be consistent. In particular, it must be adapted to the employee’s activity. Thus, in the case of an employee whose activity is carried out only in a restricted area (for example, a “department”), a clause prohibiting him from competing activity throughout the whole France territory may be reduced or cancelled by the courts.
All these aspects depend on data specific to each situation, which is why the practice of systematically including the same model non-competition clause in the contracts of its employees is strongly discouraged.
The financial contribution
It is mandatory to provide a financial contribution to the non-competition clause.
If no financial compensation is provided for, the employer may have his clause annulled and be ordered to pay damage
Depending on the case, it may be the total gross monthly salary of the employee or, in most cases, a fraction of this salary. However, it must never be trivial.
This financial compensation is considered as salary compensation. It is therefore the subject of a salary slip and is subject to social security contributions.
The right to waive the clause
If the clause so provides, the employer may waive the non-competition clause. He may, unless otherwise stipulated in a more favourable way for the employee, do so until the last day of the employee’s actual work (in particular, the end of the notice period).
Some collective agreements provide a framework for the right to waive the clause, within a very strict time limit for the employer (e.g. the collective agreement for metallurgy).
If the employer fails to notify the waiver of the clause within the prescribed period, it is then obliged to pay the financial compensation.
In conclusion, the non-competition clause is a double-edged sword. On the one hand, it can be useful in order to safeguard the company’s interests and prevent it from possible competitive actions that would be detrimental to it.
On the other hand, if the clause is poorly drafted, it may be ineffective or even result in employer liability.
Support on these issues by legal professionals is therefore very helpful.
Beware of the degression for high incomes from 1 November 2019!
In 2019, the Government began a process of reforming unemployment insurance. This resulted in Decree No. 2019-797 of 26 July 2019 on the unemployment insurance scheme.
Among the notable new measures are the tightening of eligibility and recharging conditions, the possibility of compensating resigning company founders, and the introduction of a bonus-malus for companies in certain sectors that tend to use precarious contracts.
For our purposes, the decree in question also introduced a new system of degression of benefits for high incomes, which will enter into force on 1 November 2019.
In concrete terms, the scheme concerns unemployed people whose gross income was more than 4500 euros gross and who are under 57 years of age at the end of their contracts. Thus, as from the seventh month of compensation, their allowances will be reduced by 30% (application of a “degression coefficient” of 0.7).
The employees concerned may nevertheless see the application of the scheme suspended if they follow certain training actions which will be described in a ministerial order.
This new provision applies to employees whose contracts ended on 1 November. Employees who have completed their notice period by October 30 are therefore excluded from this new regulation.
However, if the employee leaves the company as a result of dismissal, and not of a contractual termination, it is not the date of termination of the contract that is to be taken into account, but the date of the beginning of the procedure, i.e. the date of first presentation of the letter of invitation to a prior interview.
It should be recalled that with the current UNEDIC agreement, managers can leave with 36 months of benefits, without any degression , compared to 6 months at 100% and then 30 months at 70% in the future unemployment insurance scheme.
PRE-SELECTED PRESS RELEASES
Within this section, you will find some pre-selected press releases prepared for you according to your native language.
- FR: https://travail-emploi.gouv.fr/demarches-ressources-documentaires/documentation-et-publications-officielles/guides/article/guide-decisions-administratives-en-matiere-de-licenciement-des-salaries
- EN: https://news.sky.com/story/facebook-accuses-european-union-of-policing-free-speech-after-court-ruling-11835614