French Competition Law provides a comprehensive review of the French rules relating to competition: restrictive agreements, commercial negotiation, abuses of a dominant position, procedure and merger control.

French Competition Law

Breach of the non-reestablishment clause incurs the liability of the person responsible and third-party accomplices .  Non-compliance with the non-compete obligation is often related to the notion of exercise of a similar activity . In effect, it is frequent that the transferor of the business will not create a competing business but will be employed by a competitor undertaking. In this case, the  …

Breach.

It is usual in contracts for the sale of a business ("fonds de commerce") to include a clause in which the seller promises not to re-establish the same business. The influence of the seller's personality, name and general standing with customers makes such a clause necessary to protect the buyer against competition from the seller's new business.  Non-reestablishment clauses ("clauses de non-rétablissement") also exist in commercial lease-management agreements. To assess the validity of those clauses, the courts have established a compromise between contractual freedom and the freedom to do business. The validity of non-reestablishment clauses is therefore subject to two conditions. Firstly, they must be limited in scope i.e. proportionate to the purpose at hand . A clause that forbids the seller of an outlet from engaging in any commercial activity is too broad to satisfy this test, as normally these clauses have to be limited to the direct or indirect operation of a similar commercial activity . Secondly, the restriction should be limited in space and/or in time .  Both criteria may be specified but at least one of them is necessary. The seller may be restricted from re-entering a certain trade in perpetuity, as long as such restriction is limited geographically . Conversely, if the ban is limited in time it does not have to pertain to any specific geographical area . In addition, the clause prohibiting competition from the seller within a radius of 20 kilometers as the crow flies of the business being transferred applies to the original place of operation of the business, but is not enforceable against him in the event of a change in the place of operation . The Court of Cassation has added a further condition for non-salaried managers of branches of food retail stores on the basis of Article L. 7322-1 of the Labor Code. The non-compete clause must, in this case, include financial consideration; without it the unlawful clause necessarily causes a prejudice to the manager . 

Non-compete clauses are interpreted strictly . The person bound by the non-compete obligation is generally the seller or lessor of the business. Thus, a company newly set up by the seller, in violation of the non-reestablishment clause stipulated in the transfer agreement, is not liable for the payment of compensation, when it was not a party to that undertaking . In the event of communal property, both spouses are bound by the prohibition on re-establishment. However, the party bound is not always the owner of the business transferred; it may be an heir , the sole operator of the business  or the directors of a company that sold the business . 

Cass. com., 4 January 1994, LawLex200200001606JBJ.

Cass. com., 6 June 1990, LawLex200200001870JBJ; 22 October 1991, LawLex200200001783JBJ; CA Paris, 10 November 2020, LawLex202000003106JBJ: when they sold to the transferee their ice cream and sorbet manufacturing business under the name "la passerelle", the transferors undertook not to take an interest in an activity that was in competition with or similar to that of the business sold, pursuant to the non-compete clause included in the deed of transfer, so that by continuing their ice-cream business under cover of a competing undertaking in which they were minority partners and which they then sold to a third company, without the ice-cream business being excluded from the sale, they were in breach of their non-compete obligation and allowed this third company to develop an ice-cream business, directly competing with that of the transferee.

CA Paris, 30 January 1992, LawLex200200001759JBJ; Cass. com., 17 March 1998, LawLex200200001156JBJ, on the impossibility for a court which drew up a transfer plan for an undertaking that is undergoing bankruptcy reorganization to impose a non-compete obligation on the directors of the debtor undertaking which they had not contractually accepted.

Cass. com., 12 January 1988, LawLex200200001927JBJ.

On the freedom to set up business, even two months after the sale of the previous one close by but outside the geographical perimeter delimited by the non-compete clause, Cass. com., 8 April 2014, LawLex201400001846JBJ.

Cass. civ., 26 March 1928; 18 June 1945; Cass. com., 19 May 1987.

Cass. com., 26 January 2022, LawLex202200000586JBJ.

Cass. soc., 9 January 2013, LawLex201300000027JBJ and LawLex201300000028JBJ. 

Cass. com., 27 May 1997, LawLex200200001256JBJ; 16 February 2010, LawLex201000000219JBJ: the clause, limited in time and in space, which prevents any competing activity by the seller as a trader and painter/decorator, does not authorize him to exercise the activity even without having the status of trader.

Cass. com., 3 March 2015, LawLex201500000285JBJ.

Cass. com., 10 March 1982, son operating business alone.

Conditions of validity.

Breach of the non-reestablishment clause incurs the liability of the person responsible and third-party accomplices .  Non-compliance with the non-compete obligation is often related to the notion of exercise of a similar activity . In effect, it is frequent that the transferor of the business will not create a competing business but will be employed by a competitor undertaking. In this case, the courts have ruled that the exercise of an activity as an employed person in itself does not constitute unfair competition . It becomes so where the seller of the business not only has an interest in the undertaking in question, is personally involved in the management of the company, or operates alone and in a conspicuous manner a competing business nearby, but also poaches the customers of the transferred business . Thus, the transferors of a bar-restaurant business, bound by a ten-year non-compete clause applicable within a 20 km radius, violate that obligation  when they propose  “dinner evening” packages as part of their hotel service to their customers, including a restaurant service  provided by restaurants in the local area other than the transferee of the business . Unfair competition by the party bound by a non-compete obligation can also result from the creation of an enterprise engaged in a similar activity to a secondary activity of the transferred business, if customer poaching is established . The non-compete clause can prohibit the seller from engaging in a similar activity in any capacity whatsoever . In such a case, the signing of a check for the account of a competing undertaking, even if to guarantee and assist a family member, constitutes a breach of the non-compete obligation . The breach of the non-compete clause is assessed in light of the activity actually exercised by the transferor which may have changed since its initial registration in the trade and companies register .

Cass. soc., 8 July 1960; Cass. com., 3 November 1972; 13 March 1979; Cass. soc., 10 May and 19 October 1983; 23 October 1984; Cass. com., 11 March 2003, LawLex200300001066JBJ, holding liable the transferor of a business for acts committed by its subsidiaries. But see Cass. com., 14 December 2010, LawLex201000001471JBJ, the transferee of a business is not liable for the setting up by his common-law wife of a competing undertaking, insofar as he has no personal involvement in it.

Cass. com., 21 September 2004, LawLex200400002154JBJ: the transferee of a company which undertakes not to use the raw materials supplied by the transferor to manufacture competing products may lawfully associate itself with one of the latter's competitors.

See especially Cass. com., 22 October 1991, LawLex200200001783JBJ; 6 December 2005, LawLex200600000013JBJ, an associate of a SARL (limited liability company) whose activity consists in running a cafe-restaurant, catering and organizing banquets, having resigned from his post as cook within this company to become a salaried cook with his former employer is not guilty of wrongful behavior. See also CA Paris, 15 December 2010, LawLex201100000189JBJ: the breach of a non-compete clause in the transfer agreement of a pharmacy cannot result from the ad hoc voluntary assistance given to the director of a competing pharmacy. 

Cass. com., 6 June 1990, LawLex200200001870JBJ; 22 October 1991, LawLex200200001783JBJ;

CA Versailles, 15 January 2013, LawLex201300000060JBJ.

Cass. com., 26 October 1993, LawLex200200001616JBJ; CA Paris, 9 January 2009, LawLex200900003600JBJ: a former lease-manager breaches the post-contractual non-compete clause by setting up a similar business less than hundred meters from the business he previously operated; Cass. com., 16 February 2010, LawLex201000000219JBJ: the seller of a business, a painter and decorator and trader, bound by a non-compete clause concerning not only the commercial activity but also the provision of services is not authorized to exercise the activity even without having the status as a trader.

For an example of the setting up of a similar business in violation of the non-reestablishment obligation, see CA Douai, 6 June 2013, LawLex201300000963JBJ.

CA Versailles, 1 October 2009, LawLex201000001505JBJ.

Cass. com., 20 September 2011, LawLex201100001836JBJ.

French Competition Law

66. Breach.

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Les décisions de justice citées dans ce paragraphe :

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66. Breach.

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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