Non-disclosure clause in employment contracts
Newsletter - June 2019
A non-disclosure clause may be included in the employment contract of any employee who has access to strategic or sensitive information or documents (plans, studies, methods, designs, manufacturing processes, trade secrets, financial data, business information, etc.) within the framework of their work, and the disclosure of which would be detrimental to the employer.
Condition of validity and scope of the non-disclosure clause
Any contractual clause restricting free engagement in a professional activity is governed by the provisions of Article L. 1121-1 of the French Labour Code (Code du travail) according to which: “No one may restrict the rights of individuals or individual and collective freedoms unless such restrictions are justified by the nature of the task and proportionate to the aim pursued”.
A non-disclosure clause may be included in any type of contract, both permanent and fixed term. However, to be valid, it must meet certain conditions:
– Be included in the employment contract,
– Be justified (protection of the company’s interests and nature of the employee’s duties),
– Clearly mention the information that must not be revealed,
– Meet any conditions laid down by the collective labour agreement.
A non-disclosure clause continues to produce its effects after termination of the employment contract, whatever the form of such termination, provided the clause expressly stipulates that it will. This principle was confirmed by the Employment section of the Cour de Cassation in a ruling handed down on 19 March 2008.
Distinction with other types of obligations
As a matter of principle, an employment contract induces two general obligations that apply to any employee. These are a duty of loyalty and a duty of discretion which are legal obligations applicable to all employment contracts, unlike non-disclosure clauses which only apply to contracts containing them. The duty of loyalty applies to an employee even if their contract does not include any such specific clause. This obligation prohibits the employee from acting in a manner detrimental to the employer and requires them to contribute to the smooth performance of the working relationship. Any breach of this general obligation can warrant dismissal for misconduct. Unlike a non-disclosure clause, the duty of discretion ends when the employment contract is terminated.
A non-disclosure clause should also be distinguished from a non-compete clause. A non-disclosure clause bans employees from disclosing information to third parties, whereas a non-compete clause prohibits an employee from using information received when they move to a new job. In addition, as the decision of 3 May 2018 handed down by the Cour de Cassation’s Employment Section recalled, a non-disclosure clause does not give rise to any financial consideration, unlike a non-compete clause.
Penalties for breach of a non-disclosure clause
Dismissal for misconduct
Any breach of such a clause by an employee can justify their dismissal for misconduct. The courts regularly confirm the validity of dismissals in connection with failure to comply with a non-disclosure clause.
Contractual civil liability
As an employee is bound to the company by a contract, they may incur contractual liability for failing to comply with the non-disclosure clause if proof of the existence of the following three elements is established:
– a fault: a fault by the employee, i.e. a breach of the non-disclosure clause,
– a loss: the company must demonstrate a loss (financial, reputational),
– a causal link: the company must demonstrate the link between the employee’s fault (the breach of the non-disclosure clause) and the loss sustained, which must be an immediate and direct consequence of the breach.
In this case, the employee will be required to pay damages to the employer for the loss caused.
When the circumstances in which the non-disclosure clause is breached so permit, an employee may be held criminally liable. In a ruling of 22 March 2017, the criminal section of the Cour de cassation confirmed that the offence of breach of trust applied to misuse of customer information by former employees. According to Article 314-1 of the French Penal Code (Code penal) “Breach of trust is committed when a person, to the prejudice of other persons, misappropriates funds, valuables or any property that were handed over to him and that he accepted subject to the condition of returning, redelivering or using them in a specified way”. This ruling underlines that any information given to an employee by an employer in connection with their work can be the object of breach of trust, since such information must only be used for the employer’s benefit.
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