Legal news
Non-compete clause : Is it the end ?
As from September 4, 2024, the United States Federal Trade Commission (FTC) had planned to enforce a rule banning most post-employment non-compete clauses nationwide. However, this rule was blocked by a Texas federal court in late August. The court concluded that the FTC had exceeded its statutory authority, deeming the decision "arbitrary and capricious." Specifically, the court criticized the FTC for imposing a blanket ban without considering alternatives or sector-specific adjustments. Additionally, the ruling noted a lack of strong empirical justification for such a broad prohibition, overlooking the potential benefits of non-compete clauses in certain situations.
While this ruling is currently being contested, the national block on the FTC rule means that the rule will not take effect unless a higher court overturns the decision. In the meantime, companies remain free to use non-compete clauses within the bounds of their respective state laws. Additionally, the FTC retains the right to pursue individual cases if it deems specific non-compete practices to be anti-competitive.
FTC considered that non-competes unlawfully stifle competition and depress wages for U.S. workers, and that banning them would encourage competition, innovation, and increased wages.
While this position could be challenged, it makes us think about the applicable French rules in this respect.
To be valid under French employment law, the non-compete clause must be time-limited and restricted to a specific geographic area, take into account the employee’s specific job role, and include financial compensation for the employee. In theory, if the former employee fails to comply with the clause, the employer may take the matter to the labor court ("conseil de prud’hommes") to seek damages or invalidate the clause.
However, even with a valid non-compete clause in place, it is evident that, in practice, monitoring effective compliance by the employee is quite challenging. Additionally, it is complex to insure the effectiveness of such clauses in genuinely safeguarding business interests.
In any case, regardless of whether a non-compete clause is valid, the employer retains the position to defend their interests in instances of unfair competition, violations of confidential information, trade secrets, etc.
Therefore, it is legitimate to question the relevance of non-compete clauses. While an evolution of French case law in this area could be considered, a complete prohibition of such clauses does not appear to be a viable solution.
To conclude, the inclusion of a non-compete clause in an employment contract should be carefully considered by the employer on a case-by-case basis, with the precision that it is always possible to waive such clause when the employment contract ended.