The Court of Cassation rules on the distinction between compensatory indemnity and forfaitary indemnity in the context of a non-competition clause and its financial counterpart.
Extract
[...] In this case, an employee was hired as a storekeeper by a company, his contract included a non-competition clause with a forfaitary penalty of two years' gross salary in case of violation. The employee left the company and less than a month after his departure, he was hired by a competing company. His former employer then brought a lawsuit to the justice for reimbursement of the financial counterpart to the non-competition clause and for payment of a certain amount under the penalty clause provided for in the said clause. [...]
[...] We understand here the protective intention of the Court of Appeal to want to protect the interests of the employee, but the Court censors it in law and will remind it of the moderation criteria of a penalty clause. II. The recall by the Court of the moderation criteria of a penalty clause The Court will thus recall the regime of the penalty clause and enounce its moderation criteria The penalty clause, contractual sanction of the failure of one party to its obligations The legislator has opted for the consolidation of provisions relating to penalty clauses within a single text, thus prioritizing the concern of indemnifying the creditor. [...]
[...] Therefore, the financial counterpart of the non-competition obligation has the character of salary and not of forfaitary indemnity. This is what it here aims to demonstrate in point 11 of its decision The financial counterpart of the non-competition clause has the nature of a compensatory salary indemnity stipulated as a result of the employee's commitment not to exercise, after the termination of the employment contract, a competing activity to that of his former employer, and does not constitute a forfaitary indemnity provided in case of non-execution of a contractual obligation ». [...]
[...] « If the commitment has been partially executed, the judge may also, even on his own initiative, reduce the agreed penalty in proportion to the benefit derived by the creditor from the partial performance, without prejudice to the application of the preceding provision ». Therefore, in this judgment, the Court clearly states that this constitutes a ' indemnity for breach of contractual obligation ». In this regard, it can only be modified in the event of a manifest disproportion, it therefore falls within the provisions of Article L. [...]
[...] 1121-1 of the Labour Code and is subject to the principle of necessity and proportionality, the Court had already required in 1992 that these clauses be necessary for the protection of the interest of the company. A manifest disproportion as the sole criterion for moderation Article 1231-5 of the Civil Code, introduced by Ordinance No. 2016-131 of 10 February 2016, enunciates the principle that the judge may adjust a penal clause in the event of a manifest excess. This provision highlights the need for a clear disproportion to justify the reduction of the penalty stipulated in the contract. In order for a reduction to be considered, Article L. [...]
