Should Companies Include Restrictive Covenants in Assignee Contracts?
Anytime a company sends an employee on assignment, there are multiple issues to consider, although some tend to be overlooked. Among these are measures that can be taken — restrictive covenants in the employment contract – to help protect the employer’s business interests when an employee is on foreign soil.
These covenants, which are common in the United States but less so in other countries, include clauses designed to prevent an employee from using the employer’s information or resources illegally, either while employed or following termination.
Even if the employee is in a country that doesn’t recognize the validity of a restrictive covenant and won’t enforce it (either entirely or in part), the restriction itself can serve as a deterrent by articulating a company’s intention to protect confidentiality, trade secrets, and intellectual property.
Types of restrictive covenants
There are various types of covenants that are used, which depend upon a company’s preferences and priorities. The most common, which HR and mobility professionals are often familiar with, are as follows:
Non-competition clauses: Non-compete clauses limit employees from working with a company’s competitors (usually in the same industry). Most countries’ labor laws will limit the duration or location of these clauses to allow workers to pursue professional opportunities following termination.
Non-solicitation covenants: These clauses are designed to prevent employees from soliciting business from a former employer’s clients if they decide to go out on their own, or are working for a competitor.
Restrictions against poaching: Less common than the above are covenants that prevent “poaching,” or solicitation of former coworkers to work in a new business, or for a competitor.
Confidentiality and non-disclosure clauses: Confidentiality clauses are widely used in contracts, and can be the sole protection for a company against unpermitted use of trade secrets, client information, or intellectual property.
Enforcing restrictive covenants outside the U.S.
Companies in the United States routinely take former employees to court for violations of restrictive employment covenants, and the courts are generally sympathetic to businesses that suffer losses as a result. This attitude is not shared around the world however, and other countries may favor the worker’s interests over the company’s even if there is a clear breach of contract.
To minimize the potential for this in the mobility sector, companies should avoid using clauses that work in the home country but not the host country (because they’re too limiting, for example), as they may be considered invalid and leave the company with no recourse or remedy.
In addition, companies should also consider the impact on an assignee when drafting these covenants, and whether they are actually needed. Although they may be in some industries and for some types of positions, highly restrictive terms can convey distrust and impact the assignee’s performance and level of engagement.