Sudden Termination of Commercial Relationship: Notice Period Must Reflect Actual Duration, Not Customs

Imagine: you own a small building in Antibes, and for ten years, the same reprographics business has occupied your premises. Overnight, the manager tells you that he is closing down, but he gives you three months' notice. Is that enough? And what if that trader depended 80% on his sole client, a large communications group based in Valbonne? The question every landlord or business owner asks: what notice is actually due? This decision of the French Supreme Court of 3 May 2012 provides a clear answer: professional customs are not an excuse to skimp on notice. In short, even if a custom provides for a minimum period, the judge must verify whether that period is appropriate to the duration of the relationship and the state of economic dependence of the evicted party.

The facts: a story like many that happen every day

Mr. X, director of a pre-press company in Antibes, had been working for more than fifteen years with a large printing group based in Valbonne. Their relationship was stable, without a written contract, but based on mutual trust. In 2006, the group decided to terminate the collaboration. It informed the Pre Press company of the cessation of their collaboration effective from 4 May 2007, i.e. after a notice period (time between the announcement and the actual end of the relationship) of a few months. To determine this period, the group relied on the professional customs of the union of graphic communication and printing industries in France, which set a minimum notice period based on turnover. The Pre Press company contested: it considered that this notice was too short given the duration of the relationship (15 years) and its economic dependence (the group represented 90% of its turnover). The Commercial Court and then the Court of Appeal ruled in favour of the group, finding that the notice complied with customs. But the Pre Press company appealed to the Supreme Court.

The reasoning of the court — analysed

The French Supreme Court (the highest French judicial court) quashed the Court of Appeal's decision. It relied on Article L. 442-6 I 5° of the French Commercial Code (now codified in Article L. 442-1 II), which provides that the liability of its author is incurred and he is obliged to compensate the damage caused by the fact, for any producer, trader, industrialist or person registered in the trade register, of suddenly breaking off, even partially, an established commercial relationship, without written notice taking into account the duration of the commercial relationship and respecting the minimum notice period determined, by reference to trade customs, by interprofessional agreements. In other words, the law requires that the notice period be adapted to each situation. The lower courts (the Court of Appeal) had simply noted that the notice complied with customs, without verifying whether it took into account the actual duration of the relationship and economic dependence. However, the Supreme Court recalls that the existence of professional customs does not relieve the court of examining whether the notice takes into account the duration of the established commercial relationship between the parties and other circumstances of the case, in particular the state of economic dependence of the evicted company. In short, compliance with a custom is only a starting point, not a shield. undefined, I have encountered cases where suppliers hid behind customs to impose derisory notice periods. This decision calls them to order. The Court does not rule on the merits (it does not say whether the notice was sufficient), but refers the case back to another court of appeal for it to re-analyse.

What this changes for you — concretely

If you own a commercial property in Antibes or Valbonne, this decision concerns you indirectly: your tenant trader may be a victim of a sudden termination of a relationship with his supplier or client, which can jeopardise his business and therefore your rent. If you are a business owner, the implications are direct. For the party terminating: you can no longer simply apply a professional custom. You must assess the actual duration of the relationship (how long have you been collaborating?) and the economic dependence of the other party (what percentage of its turnover does your contract represent?). In Antibes, an SME in reprographics that works with a single client in Valbonne for 15 years deserves a much longer notice than the 3 months provided by custom. For the evicted party: if you receive a notice that you consider too short, you can contest it. For example, if you generate 80% of your turnover with a single client and that client gives you 2 months' notice after 10 years of relationship, you have a good chance of obtaining compensation. The judge can order the party responsible for the termination to pay damages (for example, the equivalent of 6 months of gross margin). However, be careful: the burden of proof lies with you. You must demonstrate the duration of the relationship and the state of dependence. So keep all your exchanges, invoices, emails.

Four tips to avoid this type of dispute

• Draft a written contract: even if a commercial relationship can exist without a contract, a written document allows you to set the notice terms. Provide for a progressive notice clause based on duration (for example, 1 month per year of relationship).
• Do not blindly rely on customs: consult a lawyer to verify whether the custom invoked is adapted to your situation. Customs vary by sector and region; in Antibes as in Valbonne, practices may differ.
• Assess economic dependence: if you are the main client, anticipate a longer notice period. If you are the subcontractor, document your dependence (share of turnover, difficulty in finding a replacement).
• Negotiate the termination: before sending a termination letter, discuss with the other party to find an amicable agreement. A negotiated 6-month notice is better than a 2-year trial.

Further reading: related case law and developments

This decision is part of a consistent line of the Supreme Court since the Faurecia decision of 2005, which had already established the principle of an adapted notice period. More recently, the Sofimat decision (Commercial Chamber, 20 September 2016, No. 14-29.382) specified that the judge must take into account not only the duration, but also the length of the relationship and the investments made. The trend is therefore towards increased protection of the weaker party. What few people know: the Hamel law of 2014 strengthened the system by creating a class action for restrictive competition practices. Today, the courts are very vigilant: a notice period even in compliance with customs may be deemed insufficient if the relationship was long and the dependence strong. In the future, expect judges to require detailed justifications from the terminating party.

Key points to remember

• What is a sufficient notice period? It must take into account the duration of the relationship (the longer it is, the longer the notice period) and economic dependence (if the other party cannot easily turn around, the notice period must be longer).
• Are professional customs a protection? No, they are only a minimum. The judge can always grant a longer notice period if circumstances justify it.
• What to do if I receive too short a notice? Contest it by registered letter, then seize the Commercial Court (or the Judicial Court) within 5 years. You can claim damages for sudden termination.
• What is the risk for the terminating party? It may be ordered to pay the damage suffered (loss of margin during the missing notice period). For example, if the notice should have been 12 months and only 3 were given, it will have to pay 9 months of gross margin.
• Can I terminate without notice in case of gross fault? Yes, but the fault must be characterised (non-payment, serious breach). Be careful: the burden of proof is heavy.

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