Around The World with Seymour Mansfield
Legal News with an International Perspective

By Seymour J. Mansfield, Attorney at Law

Employment of Non-U.S. Employees

Suppose your U.S.-based business desires to expand into foreign countries, whether by acquiring a foreign competitor, setting up foreign locations or otherwise. Some of the most important questions you will have to deal with are: Can you establish a favorable structure for the existing or future employment of non-U.S. employees? Can you have them sign your existing employment agreement? Is a noncompete covenant enforceable in their countries? Can you rely on the "employment at will" doctrine which prevails in the U.S. in terminating foreign employees? These are important considerations, which, as explored below, vary from country to country and require the proper advice of counsel.

United States: "At Will" Employment and Enforceable Noncompete Covenants
The fundamental premise of employment law in the United States is that absent a written agreement to the contrary, an employee's employment relationship is "at will." This means that generally, either party may terminate the employment relationship at any time and for any non-discriminatory or illegal reason.

With regard to noncompete covenants, such a covenant is generally enforceable in most U.S. jurisdictions (including Minnesota). With some variation from state to state, the courts will enforce the noncompete restriction if it (i) was supported by consideration when it was signed; (ii) protects a legitimate business interest of the employer; and (iii) is reasonable in scope to protect the employer, without being unduly burdensome on the former employee's right to earn a living.

In this month's column, we will address the treatment of noncompete covenants outside the U.S. In next month's column, we will address the issue of termination of a U.S. company's foreign-based employees.

Non-U.S. Countries: No Norm is the Norm
Most employment laws in other developed countries and particularly in western Europe are more employee-friendly than U.S. employment law. As a result, those foreign jurisdictions tend to regulate the employment relationship far more than does the U.S.

Regarding noncompete covenants, a cursory review of non-U.S. jurisdictions reveals a wide range of legal standards relating to the circumstances under which a noncompete covenant may or may not be enforced against a particular former employee. In some countries, they are deemed illegal. Where they are legally recognized, there is no single test outside of the U.S. for enforceability, as illustrated by the diverse standards applied in the following countries:

• Belgium: Noncompete clauses are valid only if (i) entered into in writing, (ii) prior to the commencement of the employment, (iii) the employee earns at least EUR 24,491.82 per year, and (iv) the noncompete is limited in geographical scope (i.e. not for a territory larger than Belgium, except in very specific situations) and in time (i.e. in any event not longer than one year).

• China: A new law, the Labor Contract Law (LCL), designed to clarify and strengthen the legal protection of Chinese workers, went into effect on January 1, 2008. It contains a range of provisions, including provisions relating to noncompete obligations, that will enhance the position of employees. Under the new law, noncompete clauses may be included subject to the following: (i) they may be included only in contracts with senior management, high-level technical personnel and other employees who are under a specific obligation of confidence; (ii) although the geographical restriction can be agreed, the term of the obligation must not exceed two years after termination of employment; and (iii) employees are entitled to compensation for loss caused by compliance with "noncompete" clauses. The LCL does not provide guidance on compensation, but past judicial decisions suggest any agreed compensation must be reasonable.

• France: A covenant not to compete is generally enforceable so long as the employer pays reasonable compensation to the terminated employee (40-50 percent of the employee's gross cash compensation) and is limited to one to two years.

• Germany: A covenant not to compete is only valid if it: (i) is for no more than two years after the end of the employment relationship; (ii) commits the employer to pay a compensation of at least half of the employee's last salary during its duration; (iii) serves to protect a reasonable interest of the employer; and (iv) does not represent a disproportionate hindrance to the career of the employee.

• Italy: Under Article 2125 of the Italian Civil Code, restrictive covenants that restrain the rights of an employee to perform activities or to provide services, once his/her employment has been terminated, are enforceable and valid only if: (i) the restrictive covenant is drafted in a written form; (ii) the restrictive covenant provides compensation for the employee; and (iii) the object and the geographical scope of the restrictive covenant are limited.

• Mexico: Employee noncompete agreements are not enforceable under Mexican law. The Mexican Constitution and the Federal Labor Law specifically direct that such restrictions are void.

• Switzerland: Under Article 340 of the Swiss Code of Obligations, to be valid, a noncompete clause must meet the following prerequisites: (i) the existence of a written agreement; (ii) the employee's access to certain trade secrets; and (iii) the possibility of substantial harm to the employer.

• United Kingdom: Noncompete covenants are rarely enforced, and only where a high level or technical employee has essential confidential knowledge which the employee will inevitably use when working for a competitor. Other types of restrictive covenants, however, are enforced. Nonsolicitation covenants are enforceable (i) regarding customers dealt with in the last year of the employee's employment; (ii) for the same kind of goods or services; and (iii) generally for a term of up to one (1) year. Nonpoaching/nonrecruitment covenants only apply to essential senior employees (whose departure would harm the company) and are usually limited to recruitment of those company employees with whom the former employee had regular dealings. In any event, enforceable nonpoaching/nonrecruitment covenants should generally be not longer than one (1) year.

Employment agreements must be tailored to fit the law of each foreign jurisdiction, with care taken to ensure there is no particular conflict between U.S. law and the law of the foreign country in which the employee will work. As we will address in March, the wide diversity applied to noncompete covenants mirrors the diversity applied by non-U.S. countries to employee termination.

Mansfield Tanick & Cohen is able to assist our international business clients in managing important issues for new and existing foreign business ventures, both through our firm's international law practitioners, coupled with the instant access to and counsel from our fellow member firms of Lawyers Associated Worldwide (LAW). (LAW has competent firm members in each of the eight countries noted above, and another 42 countries outside the U.S.)

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Seymour J. Mansfield is a founding shareholder of Mansfield Tanick & Cohen, P.A. His practice includes employment law, international law, medical device law, commercial litigation and complex and class action litigation. Mr. Mansfield is the Firm's lead representative to Lawyers Associated Worldwide (LAW), www.lawyersworldwide.com, an association of independent law firms located in over 100 major commercial centers in 50 countries throughout the world. LAW allows Mansfield Tanick & Cohen to service the legal needs of our clients that are expanding their operations and relationships into new domestic and foreign markets. Mr. Mansfield has served on LAW's Executive Committee (governing board) since 2004. He can be reached at 612-339-4295 or via e-mail at smansfield@mansfieldtanick.com.