The French Civil Code defines a settlement agreement as a “contract by which the parties, through mutual concessions, terminate a dispute that has arisen, or prevent a dispute from arising” (article 2044 of the Civil Code).
Under French employment law, employers and employees often agree to conclude settlement agreements, must often following the termination of an employment contract, with the aim of putting an end to the dispute between them, by means of mutual concessions.
Under such agreements, employees usually waive their rights and actions to damages for unfair or unlawful termination, salary back payments (overtime, bonuses…), in exchange for the payment of a financial compensation, aka settlement indemnity.
Where such a settlement agreement is signed, the question remains whether the employee may nonetheless claim for payment of specific items, including non-compete compensation, especially if the employer has not formally waived the non-compete obligation upon termination of the employment contract.
In a recent decision, the French Supreme Court clearly decided that the employee may not.
Confirming a 2014 decision (French Supreme Court, November 5, 2014, n°13-18.984 PB), it ruled that the parties’ mutual obligations related to a non-compete undertaking are necessarily included in the scope of a settlement agreement by which they declare that (i) all their rights are satisfied, (ii) they intend to include items that were not explicitly mentioned in the settlement agreement, such as the payment of a post termination non-compete compensation, (iii) they put an end to any dispute that has arisen or may arise between them and (iv) they waive any action relating to the performance or the termination of the contract.
The settlement agreement thus puts an end to any dispute related to the non-compete clause, obligation included within employment contract that existed between the parties, even if such obligation is not specifically covered in the settlement agreement.
The employee is therefore contractually barred from claiming for any non-compete compensation once they have formally executed the settlement agreement.
With such a decision, the French Supreme Court once again gives full effect to settlement agreements drafted in general terms.
French Supreme Court, February 17, 2021, n°19-20.635