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Noncompete Agreements Noncompete Agreements for Multinational EmployersCrafting Enforceable Noncompetes for Employees in Europe and Asia

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, JANUARY 4, 2012

Today s faculty features:

Susan F. Eandi, Partner, Baker & McKenzie, Palo Alto, Calif.

John M. Murphy, Partner, Baker & McKenzie, Chicago

Christopher P. Stief, Partner, Fisher & Phillips, Radnor, Pa.

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Post-Employment Restrictive Covenants (Noncompete Agreements) for Multinational Employers

Wednesday, January 4, 2012

Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

Susan EandiPartner, International EmploymentBaker & McKenzie LLPPalo Alto650 856 [email protected]

Our Global Presence– Baker & McKenzie covers the world. With our expansive global presence, our

li t t ll th l d th f l l ti bi d ith th bilit tBaker & McKenzie Baker & McKenzie Facts

clients tell us they rely on our depth of local expertise combined with the ability to bring a global perspective to their business and legal needs. Facts

67 offices68 offices

40 countries covering every major commercial, financial, and industrial center

39 countries covering every major commercial, financial, and industrial center in

in the world

3,750+ lawyers

Admitted to practice in 250+ jurisdictionsand industrial center in the world

3,900+ lawyers

p j

Fluent in 75+ languages

We speak many languages, but all speak the ‘language of business’

Admitted to practice in 250+ jurisdictions

Fluent in 60+ languages

7

We speak many languages, but all speak the ‘language of business’

Who We Are, What We DoCore Services

– Baker & McKenzie has been global from our inception. We offer clients both the uncompromising commitment to excellence expected of a top firm and a distinctive way of thinking, working and behaving – as a passionately global and genuinely

– We are also leaders in talent management, with a focus on developing both top-tier technical legal skills and sophisticated interpersonal skills, allowing us to deliver consistently everywhere we

Baker & McKenzie is arranged not just by geography, but also organized into global practice and industry groups.

– Antitrust & CompetitionBanking & Financepassionately global and genuinely

collaborative firm.– We understand the challenges of the global

economy because we have had an international presence from the start. Since our founding in 1949, we have advised

deliver consistently, everywhere we operate, world-class service tailored to the preferences of our clients.

– Our firm has more leading lawyers in more countries in the 2010 Chambers Global than any other global Top 20

– Banking & Finance– Dispute Resolution– Employment– Energy, Mining & Infrastructure– Environment & Climate Change– Financial Restructuring & Insolvency

leading multinational and domestic companies on the issues of an integrated global market, and 70% of our fees come from clients we serve in five or more countries. We serve more than 500 of the world’s largest companies.

law firm.Financial Restructuring & Insolvency

– Insurance– Intellectual Property– IT/Communications– Mergers & Acquisitions– Pharmaceuticals & Healthcaresg p

– As a community of citizens of more than 55 nations, we have a deep understanding and appreciation for the language and culture of business all over the world. This gives us a distinctive ability to help clients anticipate and address the nuances of local markets

– Private Equity– Real Estate– Securities– Tax– Trade & Commerce

8

and address the nuances of local markets as our clients pursue their global and regional business objectives with confidence.

Agenda

(1) Introduction and overview of enforceability of post-employment restrictive covenants in EMEA, APAC and AmericasAmericas

(2) When / where post-employment restrictive covenants arise

(3) Strategies for "global" use of restrictive covenants (4) Key take-aways

9

Introduction & Overview of Post-Employment Restrictive Covenant LawsRestrictive Covenant Laws

– Renewed focus on engaging and retaining talent globally – No “one size fits all” for post-employment restrictive

covenants (i.e.,non-compete and non-solicitation) agreements globallyagreements globally

– Regional commonalities

10

Post-Employment Restrictive Covenants: Americas – The Melting Pot

– Typically uncommon and usually not enforceable, but varies– U.S.: determined by state laws, which are split

on enforceability (e g void as a matter of law inon enforceability (e.g., void as a matter of law in California except in limited circumstances; valid in Illinois if reasonable in time and

hi t t tgeographic scope to protect employer’s interests)

11

Post-Employment Restrictive Covenants: A i Th M l i P ( ’ )Americas – The Melting Pot (con’t)

– Brazil: courts split between unenforceable as violating Federal Constitution and individual right to work and enforceable if 50%Constitution and individual right to work and enforceable if 50%-100% consideration

– Mexico: unenforceable as in violation of principle of “freedom of k”work”

– Venezuela: permissible up to 6 months, if supported by justifiable reason, entered at beginning of employment and 60%-80% id ti80% consideration

– Canada: enforceable if protects legitimate business interests of employer and minimal restriction on employee’s activities

12

* Trends

Post-Employment Restrictive Covenants:APAC – The Rule of Reason, Usually

– Typically permissible, subject to reasonablenessTypically permissible, subject to reasonableness restrictions (e.g., Australia, Singapore, Hong Kong):– Limited in geographic scope – Limited in duration (about 1 year)– Legitimate business interests of employer

13

Post-Employment Restrictive Covenants:APAC Th R l f R U ll ( ’ )APAC – The Rule of Reason, Usually (con’t)

– Ongoing compensation not typically required, but can be helpful Some outliers (e g invalid as a matter of law in India;– Some outliers (e.g., invalid as a matter of law in India; consideration of 20-50% in China)

* Trends

14

Post-Employment Restrictive Covenants: EMEA Y G Wh Y P FEMEA – You Get What You Pay For

– No EU Directive, so country-specific regulation thatNo EU Directive, so country specific regulation that varies (e.g., enforceable in UK if reasonable without payment; not permissible in Russia; payment not required but helpful in Switzerland)required but helpful in Switzerland)

– Typically permissible, but highly regulated:– Limited in geographic scope– Limited in geographic scope – Limited in duration (about 2 years)

– Legitimate business interests of employer

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Legitimate business interests of employer

Post-Employment Restrictive Covenants: EMEA Y G Wh Y P F ( ’ )EMEA – You Get What You Pay For (con’t)

R t i ti bilit t i ( S i t i bl– Restrictions on ability to waive (e.g., Spain not waivable; Germany only waivable for 1 year after employment ends)

– Compensation: On-going compensation during period (e.g., Germany, 50%; France, 30%; Spain 1-2 years pay)pay)

*Trends

16

Fisher & PhillipsLLPATTORNEYS AT LAW

Solutions at Work®

Non-Compete Agreements for

M l i i l E lMultinational Employers:

Options for Restrictions with aOptions for Restrictions with a Global Workforce

Presented by:Christopher P. Stief

Phone: (610) 230-2150Email: [email protected]

Atlanta · Charlotte · Chicago · Cleveland · Columbia · Dallas · Denver · Fort Lauderdale · Houston · Irvine · Kansas City · Las Vegas · Los Angeles Louisville · New England · New Jersey · New Orleans · Orlando · Philadelphia · Phoenix · Portland · San Diego · San Francisco ·

Tampa · Washington, DC

www.laborlawyers.com

Fisher & Phillips LLP

Christopher P StiefChristopher P. StiefChair, Employee Defection & Trade Secrets Practice

Member, International Employment Practice [email protected]

610 230 2130610.230.2130

Blog: www.noncompetenews.comBlog: www.noncompetenews.comBlog: www.crossborderemployer.com


Solutions at Work®

www.laborlawyers.com ● Phone (610) 230-2150

Restrictive Covenants – In General

Core Reasons for Using Covenantsg

• Prohibit removal/use of confidential business information

• Protect client relationshipsProtect client relationships

• Prevent defection of key employees

• Maintain stability of workforce


Solutions at Work®


Restrictive Covenants – Multi-National

Similar to Managing on a Multi-State BasisSimilar to Managing on a Multi State Basis

• Assess threat(s) posed by employees( ) p y p y

• Analyze options for types of restrictions

• Identify locations

• Tailor restrictions by position and locationFisher & PhillipsLLP

ATTORNEYS AT LAW

Solutions at Work®


Employment Contract Restraints

In-Term Covenants (Loyalty)( y y)

Widely accepted even where post-term t diffi lt i iblcovenants are difficult or impossible

• Not to compete (exclusive engagement)Not to compete (exclusive engagement)

• Not to use/disclose information

• Not to solicit clients/employeesFisher & PhillipsLLP

ATTORNEYS AT LAW

Solutions at Work®



Post-Term Covenants (Unfair Comp)( p)

Acceptance varies by location

• Not to compete (geography/time)

• Not to use/disclose information (define info and duration)

• Not to solicit clients (which clients?)Fisher & PhillipsLLP

ATTORNEYS AT LAW

Solutions at Work®



More Post-Term Covenants

Acceptance varies by location

• Garden Leave– Notice clause (remain employed)Notice clause (remain employed)– Non-compete with pay (terminate but pay)

In either case how much pay?– In either case, how much pay?

• Covenant not to recruit employeesFisher & PhillipsLLP

ATTORNEYS AT LAW

Solutions at Work®


Remedies

Contractually SpecifyContractually Specify

• Injunctive Relief (describe it)

• Liquidated Damages

• Attorneys’ Fees & Costs


Solutions at Work®


Other Sources of Restrictions

May At Times Find/Embed Covenants In:May At Times Find/Embed Covenants In:

• Purchase/Sale Agreements (M&A)g ( )

• Benefits Plans (condition of participating)

• Severance Agreements (terminations)

• Settlement Agreements (prior litigation)


Solutions at Work®


Coordinating Business & Legal

• Assess local law and ability to protectAssess local law and ability to protect

• Create reasonable expectations– Among global enterprise leaders– Among local (in-country) leaders– Among employees signing agreements

• Identify key risks & allocate resourcesIdentify key risks & allocate resources – e.g., who are you willing to pay not to compete?


Solutions at Work®



Solutions at Work®

Thank You

NEXT UP … STRATEGIES FOR GLOBAL EMPLOYEE NON COMPETESEMPLOYEE NON-COMPETES

Presented by:Christopher P. Stief

Phone: (610) 230-2150Email: [email protected]

Atlanta · Charlotte · Chicago · Cleveland · Columbia · Dallas · Denver · Fort Lauderdale · Houston · Irvine · Kansas City · Las Vegas · Los Angeles Louisville · New England · New Jersey · New Orleans · Orlando · Philadelphia · Phoenix · Portland · San Diego · San Francisco ·

Tampa · Washington, DC

www.laborlawyers.com

John MurphyJo u p yPartnerBaker & McKenzie [email protected]

Strategies for the Global Use of EmployeeStrategies for the Global Use of Employee Restrictive Covenants

A. The Challenge– No “global law” of employee restrictive covenants

R t i ti t di f d i th U S d– Restrictive covenants are disfavored in the U.S. and even more so abroad

– Significant / vast differences in substantive law from country t tto country

– Local public policies trump agreements– Tailoring restrictive covenants to local rules is time consuming g g

and expensive– Enforcement can be elusive outside the U.S.

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Strategies for the Global Use of EmployeeStrategies for the Global Use of Employee Restrictive Covenants (con’t)

B. Key Distinctions Between U.S. Law and Foreign Law– The U.S. has a relatively narrow view of employee rights

(e g employment at will limited privacy rights no notice of(e.g., employment at will, limited privacy rights, no notice of termination rights)

– Many foreign jurisdictions have employee protection requirements and special labor courts (e g no terminationrequirements and special labor courts (e.g., no termination without notice and just case)

– In foreign countries, employee privacy rights conflict with an employer’s right to protect confidential informationemployer s right to protect confidential information

– Many foreign countries require compensation during the term of the restriction

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Strategies for the Global Use of EmployeeStrategies for the Global Use of Employee Restrictive Covenants (Cont’d)

C. Choice of Law / Choice of Forum Provisions – Not a Sure Solution– These provisions collide with local protections

Local rules have the force of “public policy”– Local rules have the force of public policy– Home-country forum selection provisions are subject to attack– In many countries, the jurisdiction of local labor courts are

d f l i i l i l l lmandatory for claims involving local employees– Injunction obtained by Court in Forum 1 may not be enforced by

Court in Forum 2

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D. Illustration: U.S. Company Hires British Employee to Work in London

– Restrictive Covenant Governed by Illinois Law with Illinois ForumRestrictive Covenant Governed by Illinois Law with Illinois Forum Selection Provision Designating Illinois

32


– Where Can the Lawsuit be Filed? An employee may be sued only in the court of his domicile unless he has agreed to another forum after the dispute has arisen (Judgment Regulations Adopted by the EU)

33


– What Law Will Apply?– The Rome I Regulation (applies to contracts entered into after

June 17, 2008)June 17, 2008)– In absence of choice of law, law where employee primarily

works appliesParties are free to select governing law but the choice of law– Parties are free to select governing law but the choice of law shall not be applied to the extent it deprives an employee of local law protection

34


– How Will Interim Injunction / Judgment be Enforced?– A U.S. interim injunction (non-final) will be recognized only if

the injunctive relief would have been granted by an Englishthe injunctive relief would have been granted by an English court

– A foreign injunction order or judgment will not be enforced if it does not comport with English public policydoes not comport with English public policy

35


E. Understand the Foreign Legal and Business Environment– Substantive Local Rules– Local Remediesoca e ed es

– What can be accomplished by invoking substantive rights?– Is injunctive relief available?

– Local Procedures– Local Procedures– Is discovery available?– How long will it take to obtain a meaningful remedy?C lt l / P liti l N– Cultural / Political Norms

– Does the country have a nature and developed legal system?– Is it realistic to rely on the legal system for fair and impartial

?

36

recourse?


– Based on these considerations, to what extent do restrictive covenants make sense?

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F. Narrowly Craft the Restrictive Covenant to Conform with Local Law– Expect local law to ultimately apply

Provide for compensation where appropriate (e g UK)– Provide for compensation, where appropriate (e.g., UK)– Identify the legitimate business interest the restrictive covenant is

intended to protectT il h d i l i i b i i– Tailor the duration to legitimate business interest

– Tailor the geographic scope to legitimate business interest– Engage good local counsel to advise the company on local laws g g g p y

and customs

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G. Consider Arbitration Where Available– Convention on the Recognition and Enforcement of Foreign

Arbitral Awards (“New York Convention”); approximately 140Arbitral Awards ( New York Convention ); approximately 140 countries subscribe

– Private proceedingIncreased potential for application of choice of law provision– Increased potential for application of choice of law provision

– Arbitral awards enjoy superior enforcement potential– But many countries will not enforce arbitration agreements with

employees, instead requiring that claims be adjudicated in local labor courts (e.g., Brazil, France, Germany and Spain)

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H. Protect Confidential Information– Identify and protect confidential information and trade secrets

Establish expectations for trade secret protection– Establish expectations for trade secret protection– Educate and train local management about the protection of

company trade secretsD l “ d k ” l– Develop a “need to know” culture

– Create clear policies and procedures for restricting access to and disclosure of confidential information

– Strictly enforce trade secret protocols and prosecute theft

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Take-Aways

4 key questions to address in developing a global strategy on post-termination restrictions: Wh t i th ’ b i d f t– What is the company’s business need for post-employment restrictive covenants

– What are the local legal requirements applicable to post-What are the local legal requirements applicable to postemployment restrictive covenants

– What is the context of timing for seeking post-employment restrictive covenants

– What is the appropriate form for the post-employment restrictive covenants

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