Cass. com., 19 March 2025, no. 23-22.925, published in the Bulletin
The commercial chamber of the Court of Cassation clarifies the scope of non-competition clauses in franchise agreements, while sanctioning an error of law committed by the court of appeal on the effects of a judicial liquidation during the proceedings.
The facts: franchise in the home care sector
In 2015, Adhap Performances, a company belonging to the Orpea group, had entered into a franchise agreement with Mr [V] and Sjm for the operation of a centre in Troyes. Mr [V] had previously contracted three other franchises with a company in the same group, Domidom, for other locations.
In 2020, Adhap terminated the contract suddenly, accusing Mr [V] and the company Sjm of violating the non-competition, loyalty and confidentiality clauses, due to the creation of the company Everest Silver and the launch of the competing project named ‘Monalisa’.
1. On the non-competition clause: no breach without effective activity
The Court of Cassation agrees with the Court of Appeal’s ruling that Adhap’s termination was unjustified. It reiterates that a franchisee may, without violating their contractual commitments, carry out acts in preparation for a competing activity, as long as this activity does not start before the expiry of the contract or non compete clause.
‘The franchisee may, without violating the non-competition clause stipulated in the franchise contract or the contractual obligations of loyalty and good faith, carry out preparatory acts for an activity in competition with that of the franchisor, provided that this activity does not actually begin until after the expiry of the franchise contract and its non-competition commitment.’
In the case in point, even if Mr [V] had set up companies and registered trademarks in connection with the competing project, the activity was not yet operational on the day of termination. The non-competition clause could therefore not be considered to have been violated.
The Court also rejected Adhap’s arguments based on a broad interpretation of contractual loyalty and criticised the use of other clauses from separate contracts to assess the proportionality of the clause in question, recalling the principle of relative effect of contracts.
The non-competition clause in the franchise agreement is therefore interpreted restrictively. It does not prohibit acts preparatory to a competing activity but the exploitation of a competing activity.
2. On judicial liquidation: impossibility to order a company in liquidation to pay
On the other hand, the Court overturned the judgement insofar as it ordered Everest Silver (in compulsory liquidation since February 2023) to pay Adhap sums for unpaid royalties and the unlawful use of distinctive signs.
The higher court reiterated that in the event of compulsory liquidation, only the determination of liabilities is possible, not their payment. The court of appeal could not therefore uphold the rulings handed down by the commercial court in this regard.
Conclusions
This ruling seeks a balance between the protection of the interests of the franchisor and the freedom of the franchisee to do business, by placing the non-competition clause within a strictly temporal and operational framework and by giving a rather restrictive interpretation of the scope of these non-competition obligations.
While the operation of a competing business is prohibited, preparatory acts are not necessarily prohibited. Everything will depend on how the non-competition clause is worded in the franchise agreement.
By Olivier VIBERT
KBESTAN
Law firm in Evreux and Paris.
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