GLOBAL POST EMPLOYMENT NON – COMPETITION PROVISIONS

A CAREFUL UPHILL TREK

By John H. Briggs, Esq.
International Human Resources Law Practice Leader

There 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.

The 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.

The 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

Each country has its own approach to permitting, drafting, and enforcing post employment restrictive covenants, but a few general statements may be made.

• PRESUMPTION 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 reality.
• CONSTRUED 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.
• NARROWLY 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

With rather great frequency we hear the following rather curious pronouncements.

“Such 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 protection.

“If 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 company.

“We 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.

“We 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 and enforcement.

CRAFTING ENFORCEABLE POST EMPLOYMENT RESTRICTIONS

Enforceable post employment non-competition provisions are best crafted following the following guidelines.

• In Written Form
• Use of a Familiar National Format
• Respect of the National Language
• Effectively Executed
• Supported by Consideration
• Reasonable as to Subject, Geographic Scope and Duration
• Stating the Interest(s) of the Employer
• Employing Remedies Permitted by the Court
• Consistently Applied

A few notes on these points can be of assistance to the employer.

• In 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.
• Use 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.
• Respect 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.
• Effectively 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?
• Supported 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 consideration.

  A 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.

• Reasonable 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.

  Reasonable 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.

• Stating 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.
• Employing 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.
• Consistently 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

Used in conjunction with (or occasionally in substitution for) post employment non-competition restrictions are additional useful restrictive covenants such as

• Post Employment Confidentiality Agreements
• Post Employment Non-Solicitation Agreements
• Post Employment Non-Interference Agreements
• Intellectual Property 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.