• Pablo Fernández

Can a former employee create a competing business?


This article was originally published by Xavier Henry & André Bricogne, lawyers, firm Henry & Bricogne.


It is legitimate for an employee to want to create his or her own business, but often the project is developed in the same sector of activity as the job previously held. Is this possible without creating a conflict with the former employer?


An employee is free to have several jobs or successive activities during his professional life and it is not illegitimate for him to prepare his business creation project while he is still an employee. However, and in particular when his future activity will compete with that of his employer, if the employee can, for example, draft the articles of association of his future company or prepare his business plan, there is no question of him starting his new activity before having definitively left his job.


The principle of loyalty and good faith in the performance of the employment contract prohibits the employee from competing with his employer as long as he is still under the employment contract. The employee will have to resign and, unless he comes to an agreement with his employer, he will have to serve his notice period until the end of the contract.


Once the employment contract has been terminated, is the employee free with respect to his employe?


Not necessarily. The employee must verify that his employment contract did not include a post-contractual non-competition clause that would prohibit him from engaging in an activity competing with that of his employer, whether as an employee or as an independent contractor.


Non-competition clauses must necessarily be limited in duration and geographically. They must also be justified by the legitimate interest of the company that stipulates them in the contract. An employer does not have the right to prohibit its employees from any retraining or professional development by preventing them, without any geographical or temporal limit, from exercising their profession. An unrestricted or illegitimate clause could be challenged and annulled.


Once the employee has verified that he is not bound by a non-competition clause or that his project is outside the scope of said clause, can he do whatever he wants?

Not totally. He must still avoid finding himself in a situation of unfair competition.


The first practice to avoid is confusion. Indeed, if the creator of the company carries out an activity close to his former job, which is quite normal since it is this work that he masters, he must not try to divert the customers of his former employer in an illicit way, by adopting, for example, a sign or a commercial name almost identical to those of his former employer. It is legitimate for customers to follow the former employee whom they trust. For them to do so because they have been voluntarily misled would be disloyal.


Without falling into confusion, the former employee should also avoid parasitism, i.e. not to try to voluntarily place himself in the wake of his former employer in order to benefit from his investments and notoriety at lower cost.


It is also out of the question for the former employee to denigrate his former employer. Such a practice would constitute unfair competition.


Having created his own company, can the former employee hire some of his former colleagues who are still employees of the first company?


These employees are free to choose their jobs. In principle, it should be possible for them to follow the creator of the enterprise, without the latter being prosecuted for wrongful dismissal. However, precautions must be taken. On the employees' side, they must have resigned and fulfilled their obligations towards their employer, by respecting their notice period and their possible non-competition clauses. On the creator's side, he must not systematically canvass his former colleagues, causing the disorganization of the former company. This would also constitute an unfair competition practice.


Although the law and case law define the conditions under which a former employee may create a business competing with that of his former employer, they obviously do not prohibit it. It is worth remembering that the freedom of enterprise is based on article 4 of the 1789 Declaration of Human Rights and that it has constitutional value. So, good luck to the creators of companies!

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