POST EMPLOYMENT NON – COMPETITION PROVISIONS
CAREFUL UPHILL TREK
John H. Briggs, Esq.
International Human Resources Law Practice Leader
comes a time in the life of every global company when the departure of
an employee to a competitive employer raises serious concerns about the
substantial damage this event can case in terms of product and information
compromise, customer conflicts, and similar issues.
degree to which a company can avail itself of post employment non-competition
and similar protections is directly related to the care and skill with
which these restrictions have been drafted and implemented, and the reasonableness
of the situation and important company interests in which they are sought
to be enforced.
brief notes below explore this subject in the global environment. They
are not intended to be specific legal guidance for application to any
particular situation. You are advised to seek competent legal guidance
before making any decision or taking any action on this subject.
THE GENERAL GLOBAL TEXTURE
country has its own approach to permitting, drafting, and enforcing post
employment restrictive covenants, but a few general statements may be
AGAINST – Virtually every jurisdiction which permits
some form of post employment non-competition restriction proceeds
from a judicial presumption against their enforcement. That is, the
right of the individual to participate in meaningful employment in
his or her chosen profession is paramount, and only the protection
of an overriding company interest may seek to supercede this. The
views of national legislatures and judicial forums proceed from this
AGAINST THE DRAFTER – Many national courts, when considering
an action by an employer to enforce a restrictive covenant are intensely
reluctant to modify such a provision to make it enforceable. Generally,
this will mean that the company will be stuck with what they placed
in the document, and if it insufficient for the purpose, the court
may cheerfully find it unenforceable.
CONSTRUED – Following from a rebuttable presumption
against as against social policy and a judicial reluctance to modify
or expand the covenant, many courts, if convinced to enforce the provision,
will seek to do so in the narrowest possible sense. For example, if
the provision seeks to bar competition in Europe, but the employee
only performed services in France, the court may well limit enforcement
to France only.
A FEW GENERAL OBSERVATIONS
rather great frequency we hear the following rather curious pronouncements.
provisions are just not enforceable here.”
While there are a few jurisdictions where attempts to enforce a post
employment non-competition are doomed from the outset, the truth is
in most national jurisdictions a clear and convincing case will be heard
by the court on its merits. It may be an uphill battle, and the burden
is clearly on the employer to persuade the court, but the wise employer
will carefully review the matter before just abandoning its potential
she joins Company XYZ, we can sue.”
Mere employment with a competitor is rarely sufficient on its face for
enforcement. The court will consider the totality of facts and circumstances,
carefully balancing the right of the employee to gainful employment
against the degree and nature of potential and actual harm to the plaintiff
will just rely on national statutes to protect us.”
While the provisions of national statutory protections for the employer
vary widely from country to country, generally it can be stated that
there may be a statutory duty of fidelity of the employee not to compete
during the period of employment, but there is probably not a corresponding
duty post employment. A careful review of each national law is required.
just ask them to sign our US agreement.”
Each country has its own “magic language, form and content”
for an enforceable provision, and the employer varies from that at its
peril. A more effective approach is to have a consistent global template,
which captures the scope and depth of the protections the employer seeks.
This is then modified on a country by country basis for maximum application
CRAFTING ENFORCEABLE POST EMPLOYMENT RESTRICTIONS
post employment non-competition provisions are best crafted following
the following guidelines.
of a Familiar National Format
of the National Language
as to Subject, Geographic Scope and Duration
the Interest(s) of the Employer
Remedies Permitted by the Court
A few notes on these points can be of assistance to the employer.
Written Form – Generally if you think you have an enforceable
oral post employment non-competition agreement with someone, you probably
don’t. The uniform standard is that such provisions must be
in writing, signed by the parties involved.
of a Familiar National Format – As is the case with
seeking enforcement of any contract, courts everywhere like to see
documents of a familiar type and form. While use of a global template
for consistency is highly recommended, tailoring to national phraseology
and content is a must. “Post employment” is a term of
art in the matter; roughly rendering it into “after work”
just opens the door to long and damaging discussions.
of the National Language – Here the employer faces
explicit and implicit concerns. Certain jurisdiction such as France
by statute require all communication with an employee be rendered
in and executed in the national language. Failure to comply with this
requirement may render the covenant null and void on its face. Additionally,
in other jurisdictions which do not have an explicit national language
requirement, the employer must consider the fluency of the employee
(and the court) in the language used. An affirmative defense of the
employee may become that he or she just didn’t have the language
skills to comprehend the matter at signing.
Executed – Several issues fall under the ambit of execution.
First is whether the provision was executed pursuant to the requirements
of the jurisdiction. This varies, but may require witnessing, as well
as signature by both parties, etc. We highly recommend that such provisions
be included in employment agreements executed by employees at time
of hire. And secondly, was the matter executed in a way demonstrating
that it was included in the overall terms and conditions of employment?
by Consideration - Surprisingly, we confront two failures
in this regard on an all too frequent basis. The first instance occurs
where the jurisdiction may not require explicit compensation to be
stated for enforcement, but where the employer (for a variety of reasons)
required the employee to execute the agreement a substantial period
of time after employment commenced without providing additional and
identifiable compensation (consideration) for the bargain. In such
a case the agreement may fail, as not being part of the original terms
and conditions of employment, and not supported by later, separate
second common failure is to not recognize in the document the requirements
for compensation during the non-competition period in those jurisdictions
requiring it. A good rule of thumb is 60% of base compensation paid
during the period for enforcement, although specific local case law
patterns must be consulted.
as to Subject, Geographic Scope and Duration – This
is perhaps one of the most critical factors in drafting an enforceable
provision. Open ended “forever” provisions will die quickly.
A general guideline is no more than two years, with one year or less
preferred. A good approach is to recognize that in most cases the
first six months after leaving the employer is generally the critical
period to consider. Another consideration is specialty national provisions,
such as Germany’s requirement that notice of a waiver of right
to enforce be given in anticipation by a notice period equal to the
enforcement duration. Long restrictive periods in this case will result
in a practical inability to waive enforcement.
scope of prohibited activity and prohibited geography must also be
established. Broad “world wide” or “continent wide”
restrictions are disfavored unless the employee performed services
on this basis in a limited scope marketplace. And the prohibited activities
must closely parallel the duties performed for the employer.
the Important Interest(s) of the Employer – It is helpful,
but often not required, that the employer state within the restriction
document the nature of the employer’s business, products and
geographic scope of operations. This helps the court plug in quickly
to what the interests of the employer being protected may be. But
in any event, the employer must seek to protect an evident and important
company interest, having measurable impact, but must do so in the
most reasonable and limited manner possible.
Remedies Permitted by the Court – As in any well drafted
document, the provision should set out potential remedies for breach.
In most jurisdictions a breach of contract remedy will be available,
but may not provide timely enforcement of rights sought by the employer.
Alternatively, some jurisdictions will provide injunctive relief,
in which case the parties should expressly recognize the immediate
and continuing nature of the damage. But in many jurisdictions, injunctive
relief is rare or absent, in which instance a liquidated damages provision
may be the best alternative. Another issue to consider may be a local
requirement of mutuality of remedies between the parties.
Applied – And as a final note, the resultant agreement
must be consistently applied across similarly situated employees,
both as to requirement for execution and enforcement. Perhaps the
most common affirmative defense encountered in litigation is that
the particular employee has been unfairly singled out, either (a)
that other employees were not similarly restricted or (b) the employer
has not uniformly enforced its right with other former employees.
RELATED COMPANY PROTECTIONS
in conjunction with (or occasionally in substitution for) post employment
non-competition restrictions are additional useful restrictive covenants
Employment Confidentiality Agreements
Employment Non-Solicitation Agreements
Employment Non-Interference Agreements
The notes above are a very brief and cursory
treatment of a broad and important area. While each country and situation
must be explored in detail, the general messages of these notes are (a)
such restrictive covenants are possible in most jurisdictions, and (b)
carefully crafted provisions can support important company interests.
Further, where aggressive litigation in enforcement may not be the primary
aim of the employer, such restrictions also provide a moral and practical
inducement for competitive employment to be avoided, both for the employee
and the new employer.