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Transfer of securities: should the non-compete clause by the transferor be compensated?

On 28 July 2021
Transfer of securities: should the non-compete clause by the transferor be compensated?

It is clearly established that an employee's non-competition clause must be remunerated in order to be valid.

 

What about the non-competition clause provided for in connection with the transfer of social rights?

 

A decision of the French Supreme Court dated 8 October 2013 had already ruled that the non-competition clause subscribed to by a shareholder is valid as long as it is limited in time and space and proportionate to the legitimate interests to be protected; its validity is not subject to the existence of a financial consideration, except where that shareholder, at the time he contracts such non-compete obligation, is an employee of the company which he has undertaken not to compete with.

 

A recent decision of the French Supreme Court dated June 23, 2021 (F-D, R c/ Sté Konica-Minolta) confirms this case law in a case where the share transfer agreement nevertheless contained a promise of employment of the transferor, on the grounds that on the date of subscription of the non-compete obligation, the transferor was not yet an employee.

 

The drafting of contracts for the transfer of securities therefore calls for the greatest vigilance, in particular so that there is no concomitance between the signing of the non-competition commitment and recruitment.

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