In essence, a post-contractual non-competition clause can be defined as being a clause by which a person is prohibited, at the end of a contract (or for salaried workers, when they leave a company), to carry out similar activities, either by operating a personal business or by engaging with a competing employer/client, to prevent them from harming the business that has been left, by using, for themselves or for the benefit of a competitor, knowledge of the company that they have acquired while there, or in industrial or commercial matters.
Post-contractual non-competition clauses are frequently used in practice.
It is therefore important to identify the (correct) legal regime applicable to them.
We therefore considered it appropriate to summarize the main bodies of rules likely to govern non-competition clauses, namely those specific (I) to employees, (II) to the commercial agent, (III) to general commercial law and (IV) to European law.
I. Salaried workers
A. So-called “common” clause aimed at all salaried workers except certain employees and the sales representative
A.1. Conditions of validity
To be valid, a non-competition clause must:
- be entered into in writing,
- concern an employment contract for which the gross annual remuneration exceeds 36,785 EUR (amount on January 1, 2022) at the time of termination of the contract; a sub-distinction must also be made at this level:→ Between EUR 36,785 and EUR 73,571 (amounts on January 1, 2022) the clause is only valid if a collective labor agreement specifies the functions to which the non-competition clause can apply. This type of collective labor agreement exists, for example, in the hotel industry sector.→ At more than 73,571 EUR, the clause is always valid except for functions possibly excluded by a collective labor agreement,
- relate to similar activities,
- be geographically limited to places where the worker can compete effectively with the former employer (and in no case outside the national territory),
- not exceed 12 months in validity from the day the employment relationship has ended, for which the former employer must make a single, flat-rate compensatory indemnity payment, if they do indeed decide not to waive, within the first 15 days of the termination of the employment contract, the enforcement of the non-compete clause. The minimum amount of this compensation is equal to half of the gross remuneration of the worker corresponding to the period of application of the clause (for example, if the non-competition clause is provided for one year, the compensation must amount to a minimum of six months’ pay).
These conditions are cumulative. If one of them is not met, the whole clause is void.
A.2. Legal effects (if the clause is valid, certain conditions must still be met):
The clause takes effect when the contract ends after the first 6 months of its starting date:
- either in the event of dismissal for serious misconduct on the part of the worker,
- either in the event of the employee’s resignation without serious misconduct on the part of the employer,
- either by mutual agreement,
- either by the end of the term, or by the completion of the defined work.
On the other hand, the clause does not come into effect:
- either in the event of termination during the first 6 months of the starting date of the contract,
- either, after this 6 month period, in the event of dismissal without serious misconduct on the part of the worker (for example, economic reasons or incapacity of the worker),
- or, after this 6 month period, in the event of the employee’s resignation for serious misconduct on the part of the employer.
If the worker violates a valid non-competition clause that is likely to produce the effects that it is intended to prevent, they must reimburse the single, lump-sum compensatory indemnity to the employer and pay them in addition, a sum equivalent to this indemnity by way of compensation.
The judge may possibly reduce this amount or increase it.
Art. 65, 86 and 104 to 106 of the law of July 3, 1978 relating to employment contracts
B. The so-called “derogatory” clause for certain employees
It is permissible to derogate from the preceding provisions for certain employees employed by companies which have an international field of activity or significant economic, technical, or financial interests in international markets or which have their own research department.
For example, it is possible to extend the maximum period of 12 months or also to prohibit competition abroad.
C.C.T. n ° 1bis of December 21, 1978, concluded within the National Labor Council, adapting to the law relating to employment contracts the collective labor agreement n ° 1 of February 12, 1970, concerning the non-competition clause.
C. The sales representative
C.1. Preliminary remark: eviction indemnity
First of all, in the event of dismissal, the employer is required to compensate the sales representative in return for any customers that the latter is supposed to have brought to the employer (eviction compensation). The sales representative must normally provide proof of customer inflow to their employer.
The existence of a non-competition clause in the employment contract, however, creates a presumption of customer inflow on the part of the agent. In this case, the burden of proof is reversed, and it is therefore up to the employer to demonstrate that the sales representative has not brought them any clients.
C.2. Conditions of validity
To be valid, a non-competition clause must meet the following conditions:
- the gross annual remuneration of the sales representative must exceed 36,785 EUR (amount on January 1, 2022), failing which the clause is deemed to be non-existent,
- relate to similar activities,
- cannot exceed 12 months,
- be limited to the territory in which the worker carries out their activity,
- must be recorded in writing on pain of nullity.
C.3. Legal effects (if the clause is valid, certain conditions must still be met):
The non-competition clause does not apply:
- when the contract is terminated during the first six months of the performance of the contract (for contracts that started before 1 January 2014 when it was possible to provide for a trial clause in the contract, the non-competition is not applicable only during the trial period),
- after the first six months, the clause has no effect if the employer dismisses the sales representative without serious reason (for example, economic reasons or incapacity of the worker), or if the sales representative resigns for a serious reason attributable to the employer.
In the event of violation of the non-competition clause by the sales representative, the fixed compensation provided for in the contract may not exceed a sum equal to 3 months of remuneration.
However, the employer may claim greater compensation, on condition of proving the existence and extent of the damage.
Articles 104 to 106 of the law of July 3, 1978 relating to employment contracts
II. The commercial agent
Like the protection afforded to the salaried worker, the legislator has intervened to regulate the non-competition clause binding the commercial agent (independent).
A. Preliminary remark: eviction indemnity
As with the sales representative, the legislator first provides for compensation for the contribution of customers in favor of the agent by way of eviction compensation (article X.18 of the CDE) and, similarly in this way, the existence of a non-competition clause creates, by way of derogation from the normal burden of proof, a presumption of customer input on the part of the agent – which makes it easier for the latter to obtain such compensation.
B. Conditions of validity
To be valid, the non-competition clause must meet the following conditions:
- be stipulated in writing,
- concern the type of cases for which the agent was responsible,
- target only the geographic area or group of persons, and geographic area assigned to the agent,
- not exceed 6 months after the termination of the contract.
C. Legal effects (if the clause is valid, certain conditions must still be met):
The clause does not come into effect:
- when the agency contract is terminated by the principal outside the agent’s serious breach, or without exceptional circumstances within the meaning of the CDE, that is to say, circumstances which make any professional relationship between the parties impossible,
- when the agent terminates the contract for serious reasons on the part of the principal or by invoking exceptional circumstances.
The sanction must be described in the agency contract. The parties will therefore be well advised to stipulate for a lump sum compensation in the agreement in the event of violation of the clause.
In this case, however, the amount stipulated cannot exceed one year of the agent’s remuneration (Article X.22 of the CDE).
As with what is provided for with the sales representative, the principal can claim compensation for the damage actually incurred, on condition that they can demonstrate it.
Articles X18 and X22 of the Code of Economic Law
III. General commercial law
In common law, the guiding principle is free competition, which is public policy.
However, the parties may temper this rule with non-competition clauses.
To be valid, these clauses must meet three conditions, which are basic:
- temporal (the duration must be limited),
- space (the place of prohibition must be specified) and
- material (the prohibited activity must also be indicated).
Finally, the non-competition clause must also have been entered into in the legitimate interest of the creditor and, in this case, be proportionate to the realization of that interest.
These conditions being cumulative, failure to comply with any of them voids the clause.
In principle, therefore, the nullity is total, and it is not for the judge to give it any effect, however limited.
The Court of Cassation nevertheless authorizes the judge, under certain conditions, to limit the invalidity to the part of the clause, which is contrary to public order, that is, for example, to reduce the duration by hypothesis of the (illegal) clause for a maximum duration that they consider authorized (lawful).
According to this case law, the judge can “repair” the consequences of an illegal contractual clause only on the following three conditions:
- Partial nullity must be possible,
- The law should not prohibit such interference by the judge,
- The survival of the partially annulled clause must respond to the intention of the parties (for example by the presence of a clause in the agreement such as, “the clauses which will be nullified or declared invalid will remain binding on the legally authorized party.”).
Articles II.3 and II.4 of the Code of Economic Law
Cass., 23 January 2015, C.13.0579.N. www.juridat.be
IV. Rules for the protection of competition
A non-competition clause has by nature the effect of impeding the free competition of a market.
However, article 101 (formerly article 81) of the Treaty of the European Union prohibits, as a general rule, any association of companies having the objective of distorting the play of competition (101 § 1), except under certain sufficiently strict criteria, aimed at “improving the production or distribution of products, or promoting technical or economic progress, while reserving for users a fair share of the resulting profit” and for practices which are essential and will not give rise to companies the power to eliminate competition (101 § 3).
A distinction is made between horizontal agreements (agreements or concerted practice between enterprises operating at the same level of the market, i.e., generally cooperation between competitors) and vertical (agreements or concerted practice between enterprises operating at different levels of the market of the production or distribution chain, and regulating the conditions under which the parties can buy, sell, or resell certain goods or services).
The purpose of this note is not to go into overly technical detail.
Let us only devote a few words to the vertical agreements which are frequently encountered in practice.
Vertical contracts include major distribution contracts, such as franchise contracts, exclusive distributorships, and sales agency contracts.
Vertical contracts are normally supposed to escape the prohibition in principle of hindering competition, as laid down in Article 101 § 1 of the Treaty:
- either because the latter simply does not fall within the scope of this provision;
- or, because although they exceed the legal thresholds, they are expressly “excluded” by an exemption regulation and, as such, presumed to meet the conditions set by Article 101 § 3 of the Treaty.
However, even minor or exempt agreements are affected if they contain “hard-core restrictions” or “black clauses”, as listed in the various European exemption regulations.
These include, in particular, non-competition clauses whereby the duration is indefinite or exceeds five years, or even one year for franchise contracts.
In all these cases, the agreement falls outside the exclusion or exemption, which implies, in order to assess its validity, and thus to escape the principle prohibition laid down by Article 101 § 1, to demonstrate that the conditions of the exception enshrined in § 3 are met in the present case (competitive assessment). To be valid, the restrictive competition agreement must therefore “improve the production or distribution of products, or promote technical or economic progress, while reserving for users a fair share of the resulting profit” and relate to practices which are essential and will not give companies the power to eliminate competition (101 § 3).
These rules are applicable mutatis mutandis in national law.
Main legal references
Article 101 of the Treaty of the European Union
Communication from the Commission – Communication on agreements of minor importance which do not appreciably restrict competition within the meaning of Article 101 (1) of the Treaty on the Functioning of the European Union (de minimis communication) OJ C 291, 8/30/2014, p. 1–4
Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.
Regulation (EU) No 461/2010 on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the automotive sector.
Book IV of the Code of Economic Law