Non-compete clauses between firms (companies, undertakings or self-employed persons)

Non-compete clause concluded between two firms (including a self-employed person). Is my clause valid? Is it void?

What is the validity of a non-compete clause concluded between firms (undertakings, companies and self-employed persons)?

Competition law is one of the most effective scissors to cancel a contract and allow companies to regain their freedom in the market. This is true of non-compete clauses concluded between two companies to define the scope of their respective activities, the terms of which can be redefined by the judge.

The following is an overview of the rules applicable to non-compete clauses between firms.

(For non-compete clauses of another type (e.g.: non-compete clause inserted in an employment contract), it is advisable to return to the table of contents of our series of notes on non-compete clauses.)

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Non-compete clauses between companies are a priori illegal

Non-compete clauses concluded between two companies – including non-compete clauses concluded with a self-employed person – are a priori illegal. This is the logic behind it: basically, a non-competition agreement is, as the name implies, a contract by which two companies decide to suspend competition between themselves, which is illegal because it is contrary to… competition law.

By exception, a non-compete clause is lawful if it is :

1. “directly related” (or “incidental”); and
2. A non-compete clause will be “necessary” for the performance of a main contract, which is itself legitimate [1]. A non-compete clause will be “necessary” for a main contract if it is “indispensable” (2.1.) and “proportionate” (2.2.).

What does this mean? Let’s explore further.

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1. The non-compete clause must be ancillary to a legitimate main agreement

According to the case law, a “directly related” non-compete clause is a clause that is “subordinate in importance to the performance of a principal transaction and has a clear link with it“. There must therefore be a relationship of principal and accessory between the non-compete clause and a principal, legitimate objective

Consider three examples of non-compete clauses that are “ancillary” to a legitimate main agreement:

• A business sale (transfer) agreement that includes a non-compete clause designed to prevent the seller from competing with the buyer in the future;
• A franchise agreement between a car manufacturer and an independent garage owner under which the manufacturer finances the renovation of the garage owner’s showroom in return for a ban on selling competing vehicles during and after the franchise agreement;
• A “co-working” agreement between several self-employed persons (e.g. accountants, architects, doctors, consultants, etc.) to share office space, and providing that if one of them ceases to carry out his activities on the premises, he must refrain from competing within a perimeter of “x” kilometres around the office.

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2. The non-compete clause must be necessary

2.1. The non-compete clause must be “indispensable

The assessment of the necessity of the non-compete clause implies compliance with a double condition. This involves “determining whether the restriction is objectively necessary for the performance of the main transaction and whether it is proportionate to it“.

A restriction is deemed to be objectively necessary if, in its absence, the main transaction would be “difficult or impossible to carry out“. In other words, the non-compete clause is tolerated where the conclusion of the main contract would not have taken place in the absence of the non-compete clause.

Let’s take our three examples again:

• A non-compete clause is often an essential part of an agreement on the transfer of a business or the transfer of a business. As the Court of Justice stated in the Remia case [2], this type of clause has “in principle the merit of guaranteeing the possibility and effectiveness of such a transfer“, whereas in the absence of a non-competition clause “the seller, who is particularly familiar with the characteristics of the business transferred, would retain the possibility of attracting back to himself his former clientele immediately after the transfer and thus rendering the business unviable” [3].
• The non-compete clause in the franchise agreement is probably indispensable: if the manufacturer were to fear that its investments in the showroom would ultimately benefit its competitors, it would probably not undertake to make such investments.
• The non-compete clause in the co-working agreement is probably not essential. The self-employed would still have an interest in grouping together to share the rent among themselves, even without a clause. – In the latter case, however, it could be imagined that the situation would be different if the non-compete clause was concluded to ensure a return on possible additional investments such as, for example
  • the sharing of a server and the client file of the co-working species, so that in the absence of a non-compete clause, there would be a risk of misappropriation of clients;
  • professional training sessions, so that in the absence of a non-compete clause, members of the organisation could take advantage of the training and immediately go elsewhere to provide their services;
  • etc.

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2.2. The non-compete clause must be “proportionate”

Finally, the proportionality requirement calls for “economic assessments” of the situation. These assessments include

• duration ;
• material scope; and,
• geographical scope of the clause.

Non-compete clauses that are overly restrictive do not fulfil the condition of necessity/proportionality and will be considered unlawful.

The Siemens-Areva case [4] provides an enlightening illustration of how the judge assesses the proportionate or disproportionate nature of non-competition clauses concluded between companies. In 2001, Areva and Siemens created the joint venture Areva NP and signed a non-competition clause. This clause was to apply for a maximum period of 11 years beyond the life of the joint venture.

As the parent company, Siemens had benefited from privileged access to the joint venture’s confidential commercial information, which it could use to compete more easily with Areva NP after its withdrawal from the latter. The non-compete clause was therefore justified in principle, with regard to the products to which the privileged information related. However, it was considered, on the basis of concrete elements, that protection against such facilitated competition was no longer necessary after three years, since the information concerned would then become obsolete because it was too irrelevant or too uncertain.

To take the three examples mentioned above, the judge will have to check in particular that :

• the non-compete obligation accompanying the business transfer agreement does not extend beyond the activities carried out by the transferred company;
• the non-compete clause accompanying the franchise agreement does not exceed the number of years necessary for the car manufacturer to fully amortize its investments;
• the non-compete clause accompanying the co-working contract does not extend beyond the geographical area of the clients listed in the client file.

In practice, the concrete analysis of the legality of the non-compete clause between firms may differ.

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Non-compete clause between independent undertakings: special cases

The above-mentioned analysis principles (legitimate objective and non-competition clause proportionate to this objective) must be applied on a case-by-case basis. While each case is different and must be analysed independently according to the contract (if necessary: contact us), some situations recur regularly and have their own particularities.

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Non-compete clause in consultancy agreements

Consultancy contracts are often concluded between a service provider (or subcontractor) and an intermediary company (principal).

The intermediary has a portfolio of end clients and a portfolio of service providers. The intermediary offers the CVs of its service providers to carry out a specific assignment for the end client. The “framework agreement” between the intermediary and the service provider often includes a non-compete clause. The legality of this clause depends on its scope.

Non-compete clauses for IT consultants

IT specialists are often recruited by intermediaries to be placed at the service of an end client. The assignment of the IT consultant is valid for a specific period or for a specific project. The validity of the non-competition clause imposed on the IT consultant depends on its wording and on all the circumstances surrounding the project.

If you would like a professional opinion from a specialist lawyer on the legality of your non-compete clause as an IT consultant, please contact us.

Non-compete clauses for consultants in the pharmaceutical sector

The Belgian pharmaceutical sector is particularly competitive. It has the particularity of being very demanding in terms of human resources, which are often recruited for an assignment or an ad hoc project. There is a great temptation for the consultant to then work “directly” with the end client. The legality of any non-compete clause included in the consultancy contract must be assessed in the light of the circumstances of the contract.

If you would like a lawyer’s opinion on your non-compete clause as a consultant pharmacist, do not hesitate to contact us.

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Non-compete clauses for doctors or medical staff

The doctor’s non-compete clause

Doctors are a special category. If they do not run their own practice, doctors are often bound by a partnership or association contract with a clinic, hospital or medical centre. This contract may contain a non-competition obligation. Their non-compete obligation must be modulated according to :

• (i) the right of patients to choose their own practitioner; and,
• (ii) the particularities of the clientele (likely to travel to follow the patrician or not).

These elements are likely to influence the legality of the non-compete clause.

If you wish to receive legal advice on the legality of this clause, please contact us.

Physiotherapists, osteopaths, speech therapists, chiropodists, dieticians

Many practitioners are nowadays grouped together in “care houses”. In such cases, the manager of the nursing home sometimes imposes a non-compete clause on the practitioner in order to protect the attractiveness of the nursing home.

Particular attention should be paid to the motives surrounding this type of clause, the legality of which could be questioned.

Nurses and the non-compete obligation

Many self-employed nurses are affiliated to one network or another (biological analysis laboratory, mutual insurance company, health network, etc.).

The non-compete clause for self-employed nurses may have to be assessed with regard to the effect the clause has on the network as a whole.

If you have any questions, you can of course contact us.

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Non-compete clauses in the distribution sector

The post-contractual non-compete clause included in distribution contracts is subject to special rules.

This is particularly the case for :

• franchise agreement ;
• (exclusive) sales concession agreement.

The rules that apply to such non-compete clauses are inspired by antitrust competition law.

If you have a specific opinion, please contact us.

The commercial agent’s non-compete clause

Ad hoc rules are provided for in the law on the commercial agency contract. They strictly limit the conditions of application of the non-compete obligation of the commercial agent. A clause that does not respect the law is ipso facto illegal.

Non-compete clauses concluded in the context of a public contract.

Where the contract concluded with the final customer is a contract concluded after a competitive tender, periodically renewed, the non-renewal of the contract could justify the non-validity of the non-competition clause.

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What sanctions?

The question of the penalty for an unlawful non-compete clause is the subject of particularly heated debate.

• The classic sanction was to consider that the clause was null and void and that the firm subject to it could freely conduct its activities without constraint.
• However, in recent years the Court of Cassation seems to have reversed its case law and increasingly invites the judge to reduce the scope of the non-compete clause if it is excessive. According to this view, the judge should limit the number of years, the territory or the activities for which the prohibition of competition will continue to apply.

For more information, you can refer to our page on the sanction of the non-compete clause.

Finally, it should be added that since competition law is a matter of economic public policy, it must be applied in all cases by the European courts, even with regard to agreements concluded with foreign companies, as long as the agreement “impacts” the European market.

Conversely, if the non-compete clause is valid, the entrepreneur who violates the non-competition clause may be liable for damages. These damages are sometimes lumped together in a penalty clause. In this case, it is necessary to check whether this is not excessive.

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A lawyer specialised in non-compete clauses between firms?

Some lawyers have some “experience” in competition law; others are specialised in competition law.

Our specialisation in competition law is recognised by the Ordre des Barreaux Francophones et Germanophones de Belgique (decision of the Conseil de l’Ordre dated 11 January 2022).

Would you like to know more? Would you like an external opinion on your contract? Do not hesitate to contact us.

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[1] TUE, 18 September 2001, Métropole télévision (M6), T-112/99, § 106.

[2] CJEU, 11 July 1985, Remia v. Commission, 42/84, § 87.

[3] In our view, this also justifies the fact that antitrust law does not sanction non-competition clauses concluded in the context of an employment contract. (Apart from the fact that antitrust law in principle only applies to companies – including the self-employed – but not to individuals, whether consumers or employees). It is known that the law presumes a duty of confidentiality on the part of any person engaged in an employment contract. When the employer shares business secrets with his employees, he must be able to rely on their discretion. In this context, it is understandable that the non-competition clause may legitimately be considered as an indispensable accessory to the conclusion of certain employment contracts where the employee is necessarily confronted with sensitive information: without a non-competition clause reinforcing and extending the obligation of confidentiality, the contract would not be concluded; the non-competition clause is necessary because it is indispensable to the conclusion of the employment contract.

[4] Commission Decision of 18 June 2012 (COMP/39.736 – Siemens/Areva).