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Tangled Up in Cross-Jurisdictional Restrictive Covenants

17 March 2014
Corporate Counsel

As the workforce gets more mobile and more global, there may be a corresponding rise in headaches for multinational companies that seek to apply and enforce restrictive covenants in their employment contracts. A new e-book from Mayer Brown indicates that there is plenty of variability in how noncompetes, nonsolicitations and other types of restrictive covenants can be used from state to state and country to country.

Mayer Brown’s free e-book “A Global Guide to Restrictive Covenants” [PDF] surveys developments in more than 40 countries to give attorneys a clear perspective on what they might be getting into when they enter into a noncompete or nonsolicitation agreement with an employee in a different state or country. The e-book also covers pension, benefits and stock plan issues that companies might face in each jurisdiction surveyed.

John Zaimes, partner at Mayer Brown and co-leader of the firm’s U.S. employment group, told that the e-book will be helpful in doing “preliminary issue spotting” when drafting employment agreements. “It's pretty comprehensive, to the extent you can be comprehensive in a book where you’re trying to give a digestible summary of what's going on in a lot of different jurisdictions," said Zaimes, who worked on the section of the e-book dealing with the U.S.

Zaimes explained that it’s key for a company to catch problems with cross-border restrictive covenants as early in the contract-drafting process as possible. He advises carefully looking at potential legal barriers to restrictive covenants when employment contracts are being drawn up—and the Mayer Brown e-book can help identify any potential issues, at least initially. "If it raises red flags for you, you're going to want to talk to somebody and explore that in a little more depth," he said.

According to Zaimes, one does not have to even leave the U.S. to find “tremendous variety” in the way restrictive covenants are applied. For example, the e-book identifies the main criteria normally used in the U.S. for evaluating the reasonableness of a noncompete clause: duration, geographic scope and the substantive nature of the activity being restricted.

However, in a minority of U.S. jurisdictions, such as California, views can be very different. In California, which Zaimes said “stands alone as particularly difficult,” noncompetes remain largely unenforceable, unless the individual in question has sold all of his or her interest in a corporation or partnership, plus associated goodwill before entering into the noncompete.

Some countries—Russia, for example, which doesn’t accept noncompetes, noncontracts clauses, or nonsolicitation clauses as legal—have limited acceptance of restrictive covenants, according to the e-book.

Reprinted with permission from the March 17, 2014 edition of Corporate Counsel © 2014 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

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