Cross-Border Restrictive Covenants

Restructuring a business is often a stressful exercise and the uncertainty, which months of consultations inevitably causes, increases the risk of key employees leaving for other opportunities. Whilst businesses naturally cannot prevent key employees from leaving they can take steps to minimise the impact it has on the business.

One option for employers is to include post-termination restrictive covenants in the employment contracts with a view to restrict key employees, for instance by preventing them from soliciting or dealing with customers or suppliers after termination. When using post termination restrictive covenants it is important to know that the starting point is that they are void for being in restraint of trade. However, the courts will allow them if the employer can show that it is has a legitimate business interest which it needs to protect and that the restrictions are no wider than what is reasonably necessary to protect the business.

Globalisation of markets and advanced technology have resulted in many businesses having an international workforce with mobile employees and global responsibilities. This all adds to the complexity when businesses have to enforce restrictions as it may not be possible to enforce them in England although this was anticipated when the employment contract was drafted. Where a role comprises an international aspect, businesses need to consider two separate scenarios when drafting restrictive covenants. Since (ex) employees must be sued in their country of domicile it is important to distinguish between employees, who have access to and are dealing with customers or suppliers across several jurisdictions but who are nevertheless domiciled in England or Wales; and those employees who have global responsibilities and effectively carries out the role or part of the role abroad and could be regarded as domiciled abroad. In the second scenario local legal advice would be critical to ensure that the restrictions are valid and can be enforced.

Drafting and enforcing restrictive covenants are becoming increasingly more complex due to the cross border aspects which need to be considered. Consequently employers are advised to couple restrictions with a practical approach such as regularly assessing what the departure of a key employee would mean for the business. Employers may seek to minimise the impact by encouraging that customer and supplier information as well as business know-how are shared internally and by ensuring that transparent filing procedures are in place. This would enable businesses to make the most of a garden leave period and more easily take the steps necessary to contact customers and maintain relationships.

Sara Kennedy is Co-Editor of Workforce Restructuring in Europe, which published in September 2015

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