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Can there be a non-competition clause between two companies?


Procap Detective Toulon
PROCAP DETECTIVE TOULON - What about the non-competition clause between two companies?

We generally associate the “non-competition clause” with a contractual provision taking place in a relationship falling under labor law, such as that existing between an employer and an employee. But can such a provision also exist when it comes to two distinct economic entities, such as two companies? Can they agree to a non-competition clause, and under what conditions? How to reconcile the principle of freedom of enterprise and a non-competition clause? Is financial compensation obligatory? We will try to answer all these questions...



Non-competition clause: general principle

We are familiar with the non-competition clause as a contractual provision applicable in the world of work. Inserted into the contract, this clause aims to limit the employee's freedom to work for an employer, often a competitor, or in certain sectors of activity at the end of their employment contract. To be valid, a non-competition clause must be devoid of any abusive nature and obey strict rules. The non-competition clause must meet five cumulative conditions: (1) it must be essential to the protection of the legitimate interests of the company; (2) it must target specific functions or activities; (3) it must be limited in space and time; (4) it must include financial compensation; (5) it must be expressly brought to the employee's attention and provided for in the contract. Indeed, a non-competition clause cannot be presumed from the simple fact of an employment relationship; it is therefore different from the “obligation of loyalty” which is consubstantial with the employment contract.


What about the non-competition clause between two companies

Let's lift the suspense: the non-competition clause can also take place between two separate companies. It is also commonly used, particularly in franchise, subcontracting or business sale contracts. Notwithstanding some legal nuances compared to its social sister, the non-competition clause between companies is built on the same principle as that in force in labor law and obeys almost the same mechanisms: it mainly consists of limiting to one of the parties to the contract, for a certain time and in a given geographical area, the exercise of a professional activity likely to compete with the other party or the carrying out of commercial acts entering into competition with it. To be valid, a non-competition clause between companies must be justified by the need to protect the legitimate interests of the beneficiary company and duly proportionate to the subject of the contract to which it relates. A non-competition clause which provides an excessive, disproportionate or abnormal advantage to its beneficiary may be annulled on the grounds of an unfair clause. Not being a provision defined by law, except for those inserted in commercial agent contracts, it is the parties to the contract who determine the extent of the non-competition obligation. On the other hand, a non-competition clause between companies must be limited and detailed as to its purpose. A non-competition clause is never general in scope, but concerns one or more expressly designated activities. The clause must therefore precisely define the list of prohibited activities as well as the modalities of exercise. A clause that is too general risks being canceled as abusive. Remember that a clause is intended to limit the freedom of enterprise of the other party, but not to totally annihilate it, which is strictly prohibited.


The differences between a non-competition clause with an employee and that between two companies

However, there are some differences between the non-competition clause taking place in an employment relationship and that which may exist between two separate companies. Unlike its social variant, the non-competition clause between two companies does not necessarily provide for financial compensation. It is, moreover, of immediate application or on a date freely defined by the parties, while the non-competition clause in labor law is only effective and only runs from the end of the employment contract. of the employee.


What happens in the event of litigation?

In the event of litigation, a non-competition clause can be canceled if it is considered unfair. If, on the other hand, it complies with the aforementioned conditions of validity, but is not respected, it gives rise to the sanctions provided for by the parties in the contract, that is to say most often the payment of damages. for the benefit of the injured party. The judge can also prohibit the continuation of the illegally carried out activity. Finally, remember that in the event of a dispute, a non-competition clause requires strict interpretation by judges. The latter, not having the ability to replace the parties, decide on the scope and extent of the agreement, not in a general way, but as reported in the text of the clause. Hence extreme rigor, upstream, in the drafting of the clause, the choice of terms and the setting of limits.





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