Breaching a non-competition obligation is never a trivial matter. Whether you are the head of a company, the seller of a business or a partner, the undertaking not to compete with a partner or successor is a substantial part of the contractual balance. When it is broken, the damage can be immediate and lasting, threatening the very value of your business. It is therefore essential to be aware of the legal levers available to you if you are to react effectively. Before looking at penalties, it is worth recalling the principles governing this protection, as set out in the following article the complete guide to the non-competition obligation. This article focuses on the concrete actions and remedies you can obtain in the event of a breach.
Jurisdiction in the event of a breach of the non-competition obligation
The first step in asserting your rights is to identify the right legal contact. Depending on the urgency of the situation and the nature of the dispute, different courts may be involved. This division of jurisdiction means that the legal response can be adapted to the specific nature of each case, whether the aim is to put an end to unlawful competition as quickly as possible or to obtain definitive financial compensation.
The role of the interim relief judge: urgent and provisional measures
When faced with competition that is causing you immediate harm, time is of the essence. The interim relief judge is precisely the judge of urgency. When a case is referred to him, it is possible to quickly obtain provisional measures to put an end to a "manifestly unlawful disturbance" or prevent "imminent harm". In practical terms, if a former partner or a vendor of a business starts up a competing activity in breach of his undertaking, you can ask the interim relief judge to order the cessation of that activity, often subject to a fine, i.e. a financial penalty for each day's delay. This rapid procedure does not settle the dispute on its merits, but it offers essential protective protection. The judge may also award you an advance on damages if the existence of your claim is not seriously disputable.
Jurisdiction of the lower courts: definitive resolution of the dispute
Once any emergency measures have been taken, or if the situation is not urgent, the dispute must be referred to the courts for a final decision. Jurisdiction varies according to the nature of the parties and the contract concerned:
- The **tribunal de commerce** generally has jurisdiction over disputes arising from contracts between traders or commercial companies. This is typically the case for a breach of a non-competition clause in the context of a business transfer, a franchise agreement or a partnership agreement.
- The **judicial court** has general jurisdiction over civil disputes. Contracts that do not fall under commercial jurisdiction, such as an agreement between self-employed professionals, will be referred to it.
- The **conseil de prud'hommes** has exclusive jurisdiction over all disputes arising from the employment contract. This means that any action against a former employee who fails to comply with a post-contractual non-competition clause must be brought before this court.
The choice of court is therefore a strategic step that determines the outcome of the proceedings. A lawyer will help you identify the court with jurisdiction and build the case to best defend your interests.
Penalties applicable to the debtor of the non-competition obligation
Since the reform of contract law, the Civil Code offers the creditor of a non-performed obligation an arsenal of sanctions. These tools make it possible to react in a way that is proportionate to the seriousness of the breach. However, before taking any action, it is important to check that the clause in question is legal. Only non-competition clauses meeting the conditions for validity may give rise to penalties. A clause that is deemed null and void will have no effect and will leave the debtor free of any constraint.
The defence of non-performance: leverage for the creditor
The exception of non-performance is a mechanism of private justice that allows a party to suspend the performance of its own obligation as long as its co-contractor has not performed its own. In the context of a non-competition obligation, this can result in the suspension of payment of the balance of the sale price of a business or of the financial consideration due to a former employee. The 2016 reform extended this mechanism to the risk of future non-performance: if you have clear grounds for believing that your co-contractor is about to breach its undertaking, you can preventively suspend your own obligations after giving notice. This is an effective means of exerting pressure, but it must be handled with care, as a suspension that is deemed illegitimate could backfire.
Enforcement in kind: stopping the prohibited activity
Often, the creditor's main objective is not so much to obtain money as to put an end to unlawful competition. Enforcement in kind is the most direct way of achieving this. It consists of asking the judge to order the debtor to respect his undertaking, in concrete terms, to close the competing establishment or cease the prohibited activity. This measure is almost always accompanied by a fine, a financial penalty per day of delay, to ensure that it is effective. Contrary to popular belief, the former article 1142 of the Civil Code, which seemed to limit the penalty to damages, was set aside by case law well before its disappearance in 2016. Performance in kind is a right of the creditor, the breach of which causes permanent damage.
Price reduction: a refactory sanction on the margin
Introduced into ordinary law by the 2016 reform, the reduction of the price is a sanction that is useful in the event of imperfect performance of the contract. If the breach of the non-competition obligation is only partial, or if it occurs after a period of compliance with the contract, the creditor may request a proportional reduction in the agreed price. For example, if part of the price for the sale of a firm was explicitly linked to compliance with the non-competition undertaking, its breach could justify a partial repayment of that sum. This sanction, which is similar to a reduction in the contract, is less common than a claim for damages, but it may be appropriate in specific situations where the breach is not total.
Termination of the contract and survival of the non-competition clause
Termination consists of annulling the contract on the grounds of a sufficiently serious breach. For a long time, this sanction meant that all the clauses of the contract disappeared, including the post-contractual non-competition clause, which could lead to paradoxical situations. The reform of contract law put an end to this difficulty. Article 1230 of the Civil Code now explicitly states that termination "does not affect [...] clauses intended to have effect even in the event of termination, such as confidentiality and non-competition clauses". In practical terms, this means that you can request termination of a contract (e.g. a franchise agreement) for serious breach by your partner, while at the same time requiring him to comply with his non-competition undertaking after termination of the contract. The penalties can thus be cumulative.
Remedying the consequences of non-performance: damages and interest
Whatever penalty is chosen, it can almost always be supplemented by the award of damages to compensate for all the harm suffered. This loss may be material (loss of sales, reduced margins) or moral. Assessing material loss is often tricky, as a direct causal link must be proven between the fault (the breach of obligation) and the damage (the economic loss). To assess the loss, the fault must first be precisely identified. This requires a clear understanding of the scope of the non-competition obligationThis is because the extent of the breach will determine the extent of the damage that can be made good. To simplify this process, contracts often include a penalty clause. This is a flat-rate assessment of the loss in advance. In the event of a breach, the debtor is obliged to pay the agreed sum, without the creditor having to prove the exact extent of the damage. However, the judge retains the power to moderate a penalty that is manifestly excessive or to increase a penalty that is manifestly derisory.
Sanctioning third-party complicity in breach of the non-competition obligation
Breach of a non-competition obligation does not only involve the debtor. What happens if one of your competitors knowingly hires your former employee, even though he is bound by a valid non-competition clause? This third party may also be held liable. This is not a matter of contractual liability, since it is not a party to the initial contract, but of extra-contractual liability (or liability in tort), based on article 1240 of the Civil Code. For complicity to be recognised, it must be proved that the third party was aware of the existing non-competition obligation and that he nevertheless knowingly participated in its breach. The complicit third party may then be ordered in solidum with the principal debtor to pay you damages.
Solent avocats: your partner for managing competition litigation
Implementing sanctions against a breach of a non-competition obligation is a complex process, combining emergency measures, actions on the merits and damage assessments. Each stage, from bringing the matter before the right court to demonstrating fault and damage, requires precise legal analysis and an appropriate strategy. Protecting the value of your business or investment in the face of illegal competition is a major challenge. In this context, the assistance of a lawyer specialised in commercial and competition law is often essential to secure your rights and obtain fair compensation.
Each situation is unique and requires a tailor-made analysis. If you are faced with a breach of a non-competition undertaking, or if you want to secure your contracts for the future, contact our firm for tailored support.
Sources
- Civil Code, articles 1217 to 1231-7
- French Commercial Code, Articles L. 420-1 et seq., L. 721-3
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