Reed Smith Client Alerts

Authors: Fernando Lima Teixeira Séverine Martel

Type: Client Alerts

Until now, there has been no requirement for an employee to demonstrate any loss suffered to be entitled to damages owing to a null and void non-compete clause inserted into his or her employment contract.

In its decision of 25 May 2016 (Cass.soc. 25 May 2016, n°14-20.578), the French Supreme Court reversed this approach. Henceforth, an employee will have to prove the loss suffered in order to claim damages.

In the present case, an employee of a professional investment company terminated his employment contract, alleging breaches of the contract by his employer immediately after he had received a notice summoning him to a pre-dismissal meeting.

Despite the non-compete clause in his employment contract, he set up a company with one of his colleagues to compete against his former employer. At the same time, the former employee lodged a file before the Employment Tribunal, making a number of claims against his former employer relating to the performance and termination of his employment contract. In particular, he requested the Tribunal to order the former employer to pay him damages resulting from a null and void non-compete clause (the non-compete clause did not provide for any compensation).

The Court of Appeal dismissed the former employee’s claims relating to the non-compete clause on the ground that he had suffered no loss owing to the fact that he had launched a competing business.

The question then was what position the French Supreme Court would take. Would the judges confirm their previous remedy, which provides that a null and void non-compete clause automatically causes a loss to the employee? Or would they confirm the change in their position contemplated by a decision rendered on 13 April 2016, in which the French Supreme Court formally stated that, notwithstanding the facts of the case, “the judges will assess at their sole discretion the existence and amount of any loss”?

In its decision of 25 May 2016, the French Supreme Court chose the second option and dismissed the employee’s claim on the basis that the Court of Appeal had at its sole discretion judged that the employee had suffered no loss as a result of the non-compete clause.

This decision is welcome: in the past, some employees took advantage of the former remedy to claim damages without demonstrating any loss suffered; now, employees will have to demonstrate that they have suffered a loss before claiming damages. This will be quite straightforward where the employee has failed to find other employment or has found employment in another business activity.

With this decision, the French labour courts will have no other choice but to dismiss an employee’s claim if the employee has not complied with the non-compete clause in his or her employment contract, or if the employer releases the employee from this clause on termination of the contract.

 

Client Alert 2016-152