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Common Restrictive Covenants in International Assignments: Advantages and Disadvantages

Global mobility effectiveness can be hampered by the actions of former employees, who may be tempted use the information and contacts gained from an assignment for professional or financial gain.  To prevent this activity, global employers will often use contractual covenants to impose a range of post termination restrictions on former employees.

As discussed in a previous article, those restrictive covenants may not be valid or enforceable in every foreign country, but nonetheless are a crucial part of employment agreements and protect the employers business interests.

Frequently Used Post-Termination Restrictions in Global Mobility

1. Non-competition Covenants

Non-competition covenants are those contract clauses that restrict an employee from accepting a similar position with a competitor of the original employer.  In order to be enforceable in most countries, non-compete clauses cannot have an open-ended duration.  In other words, there should be some time limit in the covenant that is reasonable.

Some countries will have statutes that limit the duration of a non-compete clause, and those statutory limits would override any terms of longer duration contained in the employment contract.

Advantages

Non-compete covenants can be valuable to a company that invest a great deal of time and money in a highly skilled employee, to keep them from using that expertise to aid a competitor.  They may be especially important when structuring an international assignment where the employee could be introduced to new opportunities and position offers.

Disadvantages

The primary disadvantage of non-compete clause is that in some countries they may be either limited in time and geography, or even completely prohibited.  Some jurisdictions will allow them, but will require the former employee to be paid some percentage of their former wages while in effect.  In the worst case, the employee would be permitted to seek work with a competitor regardless of the terms of the employment agreement.

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2. Non-solicitation Covenants

Non- solicitation covenants will prohibit an employee from contacting and/or soliciting the business of the former employer’s clients and customers.  These covenants are used to prevent an employee from using customer contacts to start their own business, or for use in a position with a new employer.

Advantages

When an employee is sent on assignment they may gain personal contact and rapport with the company’s customer base in the region.  A non-solicitation clause will prevent them from using those contacts for professional gain.

Disadvantages

While they may have a deterrent effect, actually tracking and demonstrating solicitation could be difficult, and just like non-competes, a country might limit the clause in its scope of enforcement.

3. Non-solicitation Covenants of Previous Co-workers

These covenants are used to prevent a former employee from ‘poaching’ their previous co-workers to work in their own business or that of another company.

Advantages

Former employees that either start their own business or accept a new position may attempt to bring former team members with them, and this type of clause can protect a business from poaching.  Non-solicitation covenants like this may have more enforcement potential since a company’s employees are a valuable asset, and solicitation may have financial and business impact.

Disadvantages

This type of restrictive covenant could be construed as unfairly restraining the “poached” employees from seeking new or better positions, similar to a non-compete restriction.

4. Confidentiality and Non-Disclosure Covenants

Confidentiality covenants protect the sharing and use of trade secrets, business information and intellectual property that is accessed during the period of employment.  Legal remedies could include injunctive relief preventing use or sale of IP or money damages resulting from prohibited activity.

Advantages

For companies that are in an industry with sensitive data or valuable intellectual property, a confidentiality covenant is an important protection against theft or misuse by former employees.  The covenant give the company an opportunity to specifically outline the range of legal consequences, which could deter employees from misuse of information.

Disadvantages

There may a fine line between actual proprietary information and simple gains of knowledge or insight during employment.  For example, a product designer could use their experience to design similar products without actually duplicating the original.  Foreign courts may be reluctant to impose restrictions on use of a patent or copyright, when those protections originated in the home country.

Using a GEO Option and Local Employer of Record to Enhance the Advantages of Post-Employment Restrictions

Because the primary purpose of post termination restrictive covenants is to protect a company’s business interests, use of a GEO employer of record for international assignments can be advantageous.  For each of the restrictive covenants listed, there are ways that a GEO can assist the client in structuring the local employment contract to be in compliance with host country labor laws.

A future article will discuss in depth specific country examples of enforceable covenants, but there are a few universal guidelines where a GEO can be helpful:

  • Using the expertise of local employment experts to draft legally compliant covenants for the client. This gives the client the greatest opportunity for host country enforcement.
  • As local employer of record, the GEO is in a position to monitory employee activity, changes in immigration status or other factors that could be warning signs of pending resignation.
  • Structuring payroll, withholding and benefits that could give the employer ‘dual’ jurisdictional choices in the event of a contract dispute.
  • Communicating clearly with the employee the terms of the restrictive covenants and potential consequences in the event of post termination violations.

If a company elects a DIY approach to host country employment, they may be creating employment agreements and covenants which are unenforceable.  This leaves the door open for employees on assignment to freely seek other opportunities while using company resources gained while employed abroad.  The GEO in essence becomes the company’s first line of defense against misuse of confidential information, trade secrets and customer data.

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