The legal context
It is quite common for employers to include in an employment contract the possibility of unilateral waiver of the application of a non-compete obligation at the end of the employment relationship. French case law does permit such flexibility but only provided that (i) such waiver is expressly stipulated in the employment contract, (ii) the waiver is expressed explicitly to the employee individually, and (iii) the employer strictly complies with the modalities and conditions provided under the applicable collective bargaining agreement or in the employment contract regarding the waiver of the obligation. Moreover, case law strictly prohibits any provision authorising the employer to waive the non-compete obligation at any time during performance thereof, and specifies that if the contractual or conventional provisions do not establish a specific time limit, the waiver may only be effected on the date of the notification of the termination of the employment contract.
In this context, is it still possible to waive the non-compete obligation after the actual departure of an employee, particularly in situations in which he/she is exempted from working through his/her notice period?
In a recent ruling of the Supreme Court dated 21st January 2015, an employee was hired under an employment contract which provided for a non-compete clause with the ability of the employer to waive it by registered letter with acknowledgment of receipt within one month following the notification of the termination of employment. The employee was subsequently dismissed and released from working through his notice period. In accordance with the applicable contractual terms, the employee was notified of the waiver of his non-compete obligation within the time limit provided under the employment contract. However, the employee lodged an action before the employment court in order to obtain the payment of the financial consideration stipulated in the employment contract.
The Court of Appeal dismissed the employee’s claims on the basis that the employer had complied with the contractual time limit and that the waiver had been notified before the end of the notice period. Departing from the opinion of the Appellate judges, the Supreme Court overturned their decision and held that, in the event of termination of the employment contract with an exemption from working the notice period, the employer should waive the non-compete obligation on the date of the employee’s actual departure from the company at the latest, notwithstanding provisions to the contrary. Therefore, as the waiver was only notified after the employee’s departure, the non-compete obligation had already taken effect by the time of such waiver which consequently entitled the employee to the payment of the non-compete indemnity.
The meaning of the decision
This decision, in keeping with previous case law, is particularly severe for employers as, with respect to employees released from working during the notice period, it does not allow the employer to waive the application of a non-compete clause after the notice period has begun to run. Employers would therefore be well advised to ensure that non-compete obligations are always waived at the latest at the date on which the employees actually leave the company (which would generally correspond to the date of the notification of the termination in the event of exemption from performing the notice period), regardless of any contractual stipulations to the contrary. If they fail to do so, they will be obliged to pay financial consideration for a non-compete obligation that may actually have become useless.