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

How to Structure Effective and Enforceable Multinational Restrictive Covenants
How to Structure Effective and Enforceable Multinational Restrictive Covenants

How to Structure Effective and Enforceable Multinational Restrictive Covenants - Description


May 21 2014 Presenters Jamie Konn Associate Atlanta Employment Group DLA Piper LLP US Tim Brennan Associate Chicago Employment Group DLA Piper LLP US DLA Piper Ranked in Band ID: 685182 Download Presentation

Tags

piper restrictive llp covenants restrictive piper covenants llp multinational dla 2014 presentation forfeiture permitted generally employment erisa plan 2014dla

Embed / Share - How to Structure Effective and Enforceable Multinational Restrictive Covenants


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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

10Slide11

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

19

ColumbiaSlide20

Europe Noncompete EnforceabilityMay 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

22Slide23

Asia Noncompete Enforceability

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

23Hong Kong

SingaporeSlide24

Asia Noncompete Compensation

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

26

Australia

New Zealand

Generally unenforceable

Enforceable, but with limitations

Generally enforceable if there is a legitimate purpose (subject to reasonableness restrictions)Slide27

Australia Noncompete Temporal Limit

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

27Slide28

Australia Nonsolicit Enforceability

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

Generally unenforceable

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

42

Forfeiture under ERISASlide43

Roadmap to Litigation Alternatives

Forfeiture under International law

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

43

Forfeiture under ERISASlide44

If ERISA Does Not Apply

Different Rules Regarding

Forfeiture of BenefitsSlide45

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

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

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.

Forfeiture unavailable or inapplicable.

Brazil

Chile

Argentina

Venezuela

Columbia

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

46Slide47

Europe: 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.

Forfeiture unavailable or inapplicable.May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation47

France

Germany

U.K.

Spain

ItalySlide48

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

48

Asia:

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, 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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

49

Australia:

Forfeiture of Equity or Severance

Forfeiture of non-mandatory benefits permitted; claw-backs permitted; court

may

consider the reason for termination

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

Roadmap to Litigation Alternatives

Forfeiture under international law

May 21, 2014

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

51

Forfeiture under ERISASlide52

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

DLA Piper LLP (US) Multinational Restrictive Covenants Presentation

57

Shom More....
kittie-lecroy
By: kittie-lecroy
Views: 11
Type: Public

Download Section

Please download the presentation from below link :


Download Presentation - The PPT/PDF document "How to Structure Effective and Enforceab..." is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.

Try DocSlides online tool for compressing your PDF Files Try Now