How to Structure Effective and Enforceable Multinational Restrictive Covenants - PowerPoint Presentation

Presentation on theme: "How to Structure Effective and Enforceable Multinational Restrictive Covenants"— Presentation transcript

Slide1
How to Structure Effective and Enforceable Multinational Restrictive Covenants
May 21, 2014 Slide2
Presenters
Jamie Konn
Associate, Atlanta
Employment Group
DLA
Piper LLP (US)
Tim BrennanAssociate, ChicagoEmployment GroupDLA Piper LLP (US)
DLA Piper:
Ranked in Band 1 by Chambers Global – 2010 to 2014 for Global Employment
May 21, 2014
DLA Piper LLP (US) Multinational Restrictive Covenants Presentation
2Slide3
Selecting the Right Restrictive Covenant(s)Slide4
What Are You Protecting?Protection of legitimate business interests:
Trade secrets and other confidential information
Company goodwill
Clients / customers connections and relationshipsSpecialized training / unique talentStability of the workforceMay 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation4Slide5
What Are Your Options?Post-Employment Restrictions:
Noncompete
Nonsolicit of Customers / No Dealing with Customers
Nonsolicit of Employees / No Hire of EmployeesGarden LeaveConfidentiality / NondisclosureMay 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation5Slide6
Which Restriction(s) to Use?General Enforceability Requirements:
Post-employment
restraint must be reasonable in scope, duration, and geographic reach
Post-employment restraint must serve a legitimate purposeIdentify what you are trying to protect with the employee at issue, pick the least restrictive type of provision that will provide that protection, and draft narrowlyE.g., to protect interference with customer relationships by sales employee, a one-year nonsolicit of customers solicited in past year.E.g., to protect use or disclosure of trade secrets by an engineer, an defined nondisclosure paired with a limited noncompete.May 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation6Slide7
May 21, 2014
7
If
employee operates in one area, circumscribe the covenant to that area
.
For mid-level employees, qualify the restriction: “you may not work in a substantially similar position,” or “in a role where you are likely to use Confidential Information.”Specifically define the “competitive business.” Do not broadly prohibit competition “in any business the Company is engaged in.”Practical Tip – DraftingSlide8
Enforceability Across the GlobeSlide9
The Globe at a GlanceSlide10
US – General Enforceability of Noncompetes
May 21, 2014
10Slide11
May 21, 2014
11
North America: Generally
Generally enforceable if there is any legitimate purpose. Exception: California.
Limitation
on enforcement or additional requirements,
e.g
.
consideration
beyond mere employment, limitations on blue
penciling, or requirement that major business interests are in need of protection
Simply
unenforceable
Canada
United States
MexicoSlide12
May 21, 2014
12
North America: Temporal Limits
Generally enforceable up to 2 years
Generally enforceable up to 1 year
Simply unenforceable.
Canada
United States
MexicoSlide13
May 21, 2014
13
North America: Consideration Requirements
New employment is sufficient consideration in majority of jurisdiction, and continued employment may be sufficient
Only new employment may be sufficient consideration; continued employment is insufficient.
Simply unenforceable
Canada
United States
MexicoSlide14
Practical Tip – Consideration

1. Use salary increase or bonus as consideration; or
2. Make non-compete subject to company’s discretionMay 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation14Slide15
May 21, 2014
15
North America: Blue Penciling
Blue penciling generally accepted, with exceptions
Blue penciling permitted sparingly, for “trivial” parts of covenant only
Blue penciling not permitted
Canada
United States
Mexico
MexicoSlide16
South America: Generally
Generally enforceable if there is any legitimate purpose.
Limitation
on enforcement or additional requirements,
e.g
.

receipt of confidential
information
or consideration beyond mere employment, limitations on blue penciling
Simply
unenforceable
Brazil
Chile
May 21, 2014
16
Columbia
Argentina
PeruSlide17
South America: Temporal Limits
Generally enforceable up to 2 years
Generally enforceable up to 1 year
Simply unenforceable.
Brazil
Venezuela
Columbia
Peru
Chile
May 21, 2014
17
ArgentinaSlide18
South America: Consideration Requirements
New employment is sufficient consideration in majority of jurisdiction, and continued employment may be sufficient as well
Consideration required
Simply unenforceable
Brazil
Argentina
Chile
May 21, 2014
18
ColumbiaSlide19
South America: Blue Penciling
Blue penciling generally accepted, with exceptions
Court cannot blue pencil, but it can sever unenforceable terms.
Blue penciling not permitted
Brazil
Argentina
Chile
May 21, 2014
19
ColumbiaSlide20
Europe Noncompete EnforceabilityMay 21, 2014
20
Generally enforceable if there is a legitimate purpose (subject to reasonableness restrictions)
Compensation required for enforcement of the non-compete
Non-compete not enforceable or requires compensation if employer terminates employment or terminates without cause
Spain
Portugal
France
Germany
Italy
Greece
Belgium
Ireland
UK
Austria
Czech Rep.
Croatia
Denmark
Finland
Hungary
Netherlands
Norway
Poland
Romania
Sweden
Switzerland
Yellow
for employer termination
Red
if employer terminated due to redundancySlide21
Europe Noncompete Compensation
May 21, 2014
DLA
Piper LLP (US) Multinational Restrictive Covenants Presentation21Slide22
Europe Noncompete Temporal Limit
May 21, 2014
22Slide23
Asia Noncompete Enforceability
May 21, 2014
23Hong Kong
SingaporeSlide24
Asia Noncompete Compensation
May 21, 2014
24Slide25
25
Asia – Blue Penciling for Post Termination Non-Competes
Generally allowed but with restrictions
Unclear
Severability allowed, but no blue-penciling
Generally unenforceable
China
India
Thailand
Singapore
Malaysia
Indonesia
Philippines
Taiwan
Hong Kong
Japan
North Korea
South Korea
Saudi Arabia
Israel
Turkey
Vietnam
U.A.E.
RussiaSlide26
Australia Noncompete EnforceabilityMay 21, 2014
26
Australia
New Zealand
Enforceable, but with limitations
Generally enforceable if there is a legitimate purpose (subject to reasonableness restrictions)Slide27
Australia Noncompete Temporal Limit
May 21, 2014
27Slide28
Australia Nonsolicit Enforceability
May 21, 2014
28Slide29
International EnforcementSlide30
Enforcement – Venue and JurisdictionChoosing where to file is a critical decision
Identifying the Right Forum
Domicile of EU employee
Employment TribunalsAlternatives to CourtMandatory arbitration rare outside of USStatutory alternativesMay 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation30Slide31
US – Conflict/Choice of Law
May 21, 2014
31Slide32
International – Conflict/Choice of Law
Parties may choose governing law, but often rejected
European Union regulations
Public policy considerations
When drafting, consider
variations in potentially applicable countries’ law governing post-employment restrictions as well as jurisdictional, venue, and related procedural issues that can make enforcement of such covenants particularly challengingSlide33
Enforcement – Injunctive ReliefTemporary restraining orders and preliminary injunctive relief
G
enerally available in US (start and end of many cases)
Impossible in some countries because not permitted under applicable law (e.g., Spain) or not practical because civil procedure mitigates effectivenessSimilar process in foreign jurisdictionsFollow irreparable harm standardOften must also show probability of prevailing on the meritsMay 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation33Slide34
Enforcement – Other Damages/ReliefMonetary damages available in United States
Unusual remedy in many countries
Lost profits
Declaratory reliefCaution: counterclaims!May 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation34Slide35
Practical Tip – International Service
Service of Process
Federal Rules of Civil Procedure
Hague Service ConventionLetters RogatoryMay 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation35Slide36
Enforcement – Foreign Judgments
May be enforceable, but case-by-case analysis
May 21, 2014
36Slide37
Practical Alternatives to LitigationSlide38
Embedding Restrictive Covenants Into Deferred Compensation Plans
Stock Option Plan
Severance Plan
ERISA Plan
“I
agree that if I violate the restrictive covenant provisions of this Agreement, I forfeit my [Options; Severance; Deferred Compensation]”
Golden HandcuffsMay 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation38Slide39
Why Use Golden Handcuffs?
Company has little presence in area
Unfavorable foreign judicial systems
Hostile foreign courts
Lastly: economics…
Overseas employees are often have strong deferred comp anyway
May 21, 2014
39
Possession is 9/10 of the law

Practical Tip – ForfeitureSlide40
The Economics

Vs.
Using Forfeiture Savings = Deferred Compensation ForfeitureLitigatingSavings = Benefit of (Possible) Successful EnforcementMINUSCost of Litigation
May 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation
40Slide41
Caveat to ForfeitureMany jurisdictions provide mandatory statutory severance. This cannot be ransomed for covenant compliance.
Many also have statutory tax-qualified pension rules that limit forfeiture (like ERISA).
May 21, 2014
DLA Piper LLP (US) Multinational Restrictive Covenants Presentation41Slide42
Roadmap to Litigation Alternatives
Forfeiture under International law
May 21, 2014
42
Forfeiture under ERISASlide43
Forfeiture under International law
May 21, 2014
43
If ERISA Does Not Apply
Different Rules Regarding
Forfeiture of BenefitsSlide45
May 21, 2014
45
North America: Forfeiture of Equity or Severance
Forfeiture of non-mandatory benefits permitted; claw-backs permitted; court
may
consider the reason for termination
Forfeiture of non-mandatory benefits may be permitted, but reason for termination is significant factor and/or the standard is similar to that for injunctive relief.
United States
Canada
MexicoSlide46
South America: Forfeiture of Equity or Severance
may
Forfeiture unavailable or inapplicable.
Brazil
Chile
Argentina
Venezuela
Columbia
May 21, 2014
46Slide47
Europe: Forfeiture of Equity or Severance
may
Forfeiture unavailable or inapplicable.May 21, 2014
DLA Piper LLP (US) Multinational Restrictive Covenants Presentation47
France
Germany
U.K.
Spain
ItalySlide48
May 21, 2014
48
Asia:
Forfeiture of Equity or Severance
may
Forfeiture of non-mandatory benefits may be permitted, subject to limitations, such as reason for termination or the benefits involved.
Forfeiture unavailable or inapplicable.
China
India
Thailand
Malaysia
Indonesia
Philippines
Taiwan
Japan
Vietnam
RussiaSlide49
May 21, 2014
49
Australia:
Forfeiture of Equity or Severance
may
AustraliaSlide50
Practical Tip – Forfeiture
Make compensation is exclusively in exchange for
restrictive covenant.
Tullett Prebon plc v. BGC Brokers LP & others [2010] EWHC 484 (QB) (U.K.) Beware statutory severance
Harder to enforce if terminated without cause
Forfeiture vs. clawbacks
May 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation50Slide51
Forfeiture under international law
May 21, 2014
51
Ensure that your “
benefit
plan gives the
administrator or
fiduciary discretionary authority
to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber v. Bruch, 489 U.S. 101, 115 (1989)Arbitrary and Capricious Standard
This generally ensures
the forfeiture of employee’s deferred compensation is only overruled if “arbitrary and capricious.”
May 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation52Slide53
ERISA Extraterritoriality
ERISA?Slide54
ERISA Extraterritoriality
ERISA applies if:
Plan maintained in U.S.; OR
2. Plan is primarily for U.S.
citizens.
29
U.S.C. § 1003(b)(4).
Lefkowitz

v. Arcadia Trading Co. Ltd. Ben. Pension Plan
, 996 F.2d 600, 602 (2d Cir
.,
1993
) (ERISA applied to plan covering a U.S. citizen, even though plan was established by Hong Kong entity).Slide55
Pros & Cons: Embedding The Covenant Into An ERISA Preempts State Law
Benefits to ERISA Plan:
Arbitrary and capricious standard
Preemption of state lawLimitations
On ERISA Plan:
To qualify as an ERISA plan, the plan must systematically defer compensation until “termination” or “retirement.” It cannot be tied to an incentive plan that pays out money or equity during the term of employment.Participation is limited to highly compensated employees—rule of thumb is top 15%. Some key people whom you wish to bind may not fit into this category.
The plan must be unfunded.May not independently provide for injunctionSlide56
Practical
Tip – Plan Language
Even if no ERISA, give Company or administrator discretion
“Arbitrary and capricious” standard may still apply even outside ERISA. See, e.g. Weir v. Anaconda Co. 773 F.2d 1073, 1079 (10th Cir. 1985); Noonan v. Staples, Inc., 556 F.3d 20, 34 (1st Cir. 2009).Be careful providing for damages.
May 21, 2014DLA Piper LLP (US) Multinational Restrictive Covenants Presentation
56Slide57
Questions
May 21, 2014
57

How to Structure Effective and Enforceable Multinational Restrictive Covenants - PowerPoint Presentation

How to Structure Effective and Enforceable Multinational Restrictive Covenants - Description

Tags

Presentation on theme: "How to Structure Effective and Enforceable Multinational Restrictive Covenants"— Presentation transcript

Download Section

Related Documents

RESTRICTIVE COVENANTS RESTRICTIVE COVENANTS AND MODIFICATION) MODIFICA PowerPoint Presentation

A New Prescription for PowerPoint Presentation

Please Release Me: Analyzing the Enforceability of Restrictive Covenants in Employment Agreements PowerPoint Presentation

Structuring Loan PowerPoint Presentation

Enforceable Undertakings: Are they Procedurally Fair?Marina Nehme ... PowerPoint Presentation

Doctrine & Covenants 2, 3, 10 Object Lesson ! Doctrine & Covenants 2 PowerPoint Presentation

Covenants PowerPoint Presentation

Covenants PowerPoint Presentation

COVENANTS PowerPoint Presentation

Restrictive Executive Bonus Agreements PowerPoint Presentation

Doctrine & Covenants 69-75 PowerPoint Presentation

Multinational Corporations PowerPoint Presentation