Bad Leaver & Good Leaver Clause in France: A Complete Guide for SME Managers and CEOs
Understand everything about bad leaver and good leaver clauses: definition, differences, concrete examples, risks and practical advice for SMEs. An expert guide written by a specialized lawyer in Paris to secure your partner agreements and executive contracts.
Introduction: challenges of bad leaver/good leaver clauses
The drafting of a partners' agreement or an employment contract in an SME often involves anticipating the departure of a strategic partner or employee. The clauses Bad Leaver and Good Leaver are essential to secure your business, limit financial risks and promote a climate of trust. Understanding their mechanisms and their usefulness is fundamental.
Definition of bad leaver and good leaver clauses
What is a bad leaver clause?
The clause of Bad Leaver penalizes the partner or employee who leaves the company under faulty circumstances: resignation, serious misconduct, violation of commitments... It imposes the sale of its shares at a very disadvantageous price, much lower than their real value.
What is a good leaver clause?
The clause of Good Leaver protects the outgoing person in the event of legitimate departure (retirement, illness, dismissal without fault, death, etc.). The sale price of the shares is then favorable, often close to the real or market value.
Concrete example
Imagine an SME with three founding partners. If one resigns to create a competitor, the bad leaver clause applies and he must sell his shares at nominal value, which limits his gain in value. If an associate leaves due to illness or retirement, the good leaver clause offers him a fair price.
Objectives and usefulness of clauses
- Anticipate disorganizing departures : Avoid opportunistic departures.
- Securing the partners' agreement : Stabilizes the capital structure.
- Protecting the business : Discourages behavior that is harmful to social interest.
Difference between Good Leaver and Bad Leaver
Example of a bad leaver clause (pedagogical model)
In the event of qualification as a “Bad Leaver Associate” (resignation, serious misconduct, violation of the pact), the person transfers all of his shares to the company or to the designated partners, for a price equal to the nominal value or at a fixed discount (for example, 60% of the expert value).
Jurisprudence and doctrinal analysis
French case law allows these clauses in partners' agreements, as long as the penalty is not disproportionate.
Example: the judgment of the Court of Cassation of 30 March 2016 validates the sale at the nominal value of a resigning partner, while recalling the prohibition of plunder or excessively penalizing clauses.
Unfair terms: risks and precautions
What is an abusive bad leaver clause?
A clause is qualified as abusive if the penalty is excessive (symbolic price regardless of the context) or without contradictory control. The judge may cancel it if it infringes the fundamental rights of the person concerned.
Good practice
- Define bad leaver cases precisely.
- Plan a reasonable valuation (proportionate discount, intervention of an independent expert).
- Set up an adversarial notification and dispute procedure.
Integration into an employment contract and partners' agreement
What are the 4 essential clauses of an employment contract?
- Non-competition : forbidden to carry out a competing activity after departure.
- Mobility : change of workplace possible.
- Exclusivity : prohibited from exercising any other professional activity.
- Variable remuneration : specifies the conditions of the bonus/bonuses.
In practice, the bad leaver/good leaver clause rather concerns partners' agreements, except in specific cases of shareholder or employee managers benefiting from BSPCE/shares.
Practical tips for securing your clause
- Adapt according to the structure (incoming/outgoing associates).
- Define bad/good leaver cases precisely.
- Secure the valuation with an independent expert.
- Plan an appeals/mediation procedure.
FAQ on bad leaver/good leaver clauses
What is a bad leaver clause?
Sanctions the wrongful departure, imposes the sale of shares at an unfavorable price.
What is an abusive bad leaver clause?
Excessive, disproportionate or without real reason: cancellation possible by the judge.
What is the difference between good leaver and bad leaver?
The good leaver leaves the company for a legitimate reason and gets a good transfer price. The bad leaver leaves at fault and is sanctioned for the price.
What are the 4 essential clauses of an employment contract?
Non-competition, mobility, exclusivity, variable remuneration.
Bad leaver clause: model
The model is detailed above: to be adapted according to the particular situation.
Bad Leaver Clause: Definition
Clause requiring the unfavourable transfer of shares in the event of a wrongful departure.
Abusive bad leaver clause
Clause involving an unjustified or excessive penalty or without a fair procedure.
Conclusion
Mastering bad leaver and good leaver clauses makes it possible to secure the capital and governance of your SME in the event of an unexpected departure. A good clause, tailor-made and validated by a specialist advisor, ensures your peace of mind.
Article written by Guillaume Leclerc, lawyer in commercial contracts and commercial litigation in Paris
