Mrs. S sold her company under a share purchase agreement (SPA) but continued working for this under an employment contract.
The SPA included a non-compete clause preventing her from working for a competitor.
The employment contract did not include such a clause.
Upon her dismissal, Mrs. S challenged the validity of the non-compete clause included in the SPA before the labor court (not before a civil or commercial court) and based on the French employment law requirements (not based on the civil requirements) on the ground that the scope of the clause was not limited in either space or time.
The Labor Chamber of the French Supreme Court ruled that, given the circumstances, the non-compete clause included in the SPA was consubstantial to the employment contract and had a direct impact on the freedom of work of the employee. The Supreme Court then applied the employment law requirement to the non-compete clause included in the SPA and granted Mrs. S damaged after it ruled that the clause was null and void on the ground that the scope of the clause was not limited in either space or time.
Buyers of French companies that keep the sellers on as employees must know that the fact for the non-compete clause to be included in the SPA and not in the employment contract will not exclude the application of French employment law according to which non-compete agreements are valid only if they are limited both in time and space and provide for post-termination compensation. Non-compete agreements meeting these requirements should therefore be inserted either in both the SPA and the sellers’ employment contracts.