Back in July 2011, we wrote in our sister blog, "Noncompete News," about the challenges posed for in-house attorneys who are tasked with drafting and enforcing restrictive covenants when a company does business in many different states throughout the country.  See Non-Competes in a Multi-State Environment.  In recent years, however, we are hearing from more and more companies facing an analogous challenge that is even more daunting:  managing non-compete and trade secret issues on a multi-national basis.  This isn’t just a problem for Fortune 500 companies.  A recent study by Deloitte Consulting found that 52% of U.S.-based middle market companies surveyed derive some of their revenues from abroad and that 48% already have employees outside the U.S.  Looking into the future, Deloitte’s survey also found that within three years  65% of middle market companies anticipate they will be operating abroad; 10% expect overseas revenues to outstrip domestic revenues within three years; and nearly 30% report they will have at least a quarter of their employees based abroad.  See Mid-Market Perspectives:  2011 Report on America’s Economic Engine.  More and more middle market companies are grappling with the need to manage a global workforce, and those that aren’t grappling with it yet likely will need to do so in the near future.  

As a result, we thought it might interest our readers to offer a series of blog posts on the emerging challenge of managing non-compete and trade secrets issues when operating in a multi-national environment.  In general, managing these issues on a multi-national basis requires the same skills and discipline that allow a company to effectively create and implement a program of protecting competitive assets domestically.  Key first steps in drafting any restrictive covenants include:

• Carefully identifying the business risks the company faces when employees jump ship
• Cataloguing the types of employees who pose these risks
• Considering what types of post-employment protections could be used to minimize the risks
• Tailoring contractual restrictions to match the risks as closely as possible, so that the company seeks no more restraint than necessary to protect against specific risks
 
With this information in hand, a basic template agreement can be created.  This template functions as a “default setting” of what the company ideally would like to have in place.  The next step is to catalogue the countries in which the company has employees whose functions place them in one of the categories against which the company would like protection.  Once that list is in place, the process of determining what protections are possible in the various locations can commence.  In-house attorneys undertaking this process will find that many of the legal structures internationally are not all that different from what we already manage every day in the 50+ jurisdictions within the United States.  Just as there are dramatic differences betweenCalifornia, Delaware and Louisiana, so too are there important differences in the restrictive covenant laws in India, Mexico and China. 

With this in mind, we offer our series of blog posts offering a primer for in-house counsel on the non-compete and trade secrets law in key nations around the world in which U.S. companies increasingly find themselves (or expect to soon find themselves) employing people and facing the attendant risks of employee departures.

Tune in soon.  We’ll start first with Mexico. . . .

Christopher P. Stief is the chair of Fisher & Phillips' Employee Defection & Trade Secrets Practice Group and a member of the firm's International Employment Practice Group.  To receive notice of future blog posts either follow Christopher P. Stief on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

When involuntarily terminating an employee in the United Kingdom, there are at least two perspectives on the necessity of termination payment, as explained in a recent decision from the Employment Appeal Tribunal.  In Weston Recovery Services v. Fisher the EAT emphasized that the statutory standards for unfair dismissal under the Employment Rights Act of 1996 are distinct and separate from the question of whether an employee was entitled to payment in lieu of notice under his or her employment agreement:

(a) Gross Misconduct Voiding Contractual Notice Clause:  at common law, a contractual duty to give notice or make payment in lie of notice is voided only by gross misconduct by an employee, which is conduct during employment that is so severe that it amounts to “a repudiatory breach of the contract of employment entitling the employer to terminate the contract without notice or pay in lieu of notice”; and

(b) Unfair Termination Under the Employment Rights Act of 1996: under the Act, the question of whether a termination is actionably unfair turns on whether the employer can show (i) a potentially fair reason for the dismissal, (ii) that the employer followed a reasonably fair investigatory and disciplinary procedure under statutory requirements, (iii) that “the sanction of dismissal for that misconduct fell within the range of reasonable responses” to the type of misconduct alleged.

See Weston Recover v. Fisher  (UKEAT/0062/10/ZT) at pp. 4-5.  A dismissal may satisfy the standards for a fair termination under the Employment Rights Act of 1996, and therefore give rise to no liability for termination compensation under the statute, but yet still not be based on misconduct that is sufficiently severe to void the employer’s duty to make a payment in lieu of notice under an employment contract.  That is what the EAT ruled in Weston Recovery v. Fisher -- although the termination was "fair" and not actionable under the Act, the employer still owed a payment in lieu of notice because the tribunal below had found the employee's conduct did not rise to the level of "gross misconduct" to void the contractual duties. 

The lesson:  When addressing potentially terminable employee misconduct by a UK based employee, employers should apply investigation, disciplinary and termination procedures that comport with statutory standards of fairness, but then must always make a separate determination of whether any payment in lieu of notice may be due to the employee under common law contract standards.  Employee misconduct that is sufficient to consider termination to be “fair” may or may not rise to the level of “gross misconduct” that is severe enough to be considered a repudiatory breach that voids the employer’s duty to make a contractually agreed payment in lieu of notice. 

A copy of the EAT's opinion is available in PDF format below.

Christopher P. Stief is a partner in the Philadelphia office at Fisher & Phillips LLP.  To receive notice of future blog posts either by Mr. Stief or other members of the Firm's international employer's practice, you may subscribe to this blog's RSS feed or follow Mr. Stief on Twitter at @CStiefLaborLaw.  As always, please feel free to share your thoughts or pose your questions in the comment field below.  

Weston Recovery v Fisher decision.pdf (106.52 kb)