Restrictive CovenantsTrade Secrets

Employment Lawand

in

An International SurveyVolume II

Americas, Asia, Middle East and Africa, Oceania

Editors-in-ChiefWENDI S. LAZAR

Outten & Golden LLPNew York, New York

GARY R. SINISCALCOOrrick, Herrington & Sutcliffe LLP

San Francisco, California

Associate Editor

OSCAR DE LA VEGA G MEZÓBasham, Ringe y Correa, S.C.

Mexico City, Mexico

GARY R. SINISCALCO

WENDI S. LAZAROutten & Golden LLPNew York, New York

Timothy J. DarbyBNA

Arlington, Virginia

Regional EditorsAmericas

Latin America

United States and Canada

Orrick, Herrington & Sutcliffe LLPSan Francisco, CA

Asia

DANNY ONG

Rajah & Tann LLPSingapore

TEO SHU QIUANDREA TARYN BAKER

DAVID J. MILLSTONESquire, Sanders & Dempsey L.L.P.

Cleveland, Ohio

Middle East and AfricaDANNY ONG

Rajah & Tann LLPSingapore

TEO SHU QIUANDREA TARYN BAKER

Oceania

ROBERT S. PÉ

Orrick, Herrington & SutcliffeHong Kong S.A.R.

ERICA CHONG

International Labor and Employment Law CommitteeSection of Labor and Employment Law

American Bar Association

BNA Books, , Arlington, VirginiaA Division of BNA

Z

by

Wendi S. LazarOutten & Golden LLP

c

Orrick Herrington & Sutcliffe LLPGary R. Siniscalco

Comparative Overview

Copyright © 2010American Bar Association

Chicago, IL

Reprinted by permission.

Library of Congress Cataloging-in-Publication Data

Restrictive covenants and trade secrets in employment law : an internationalsurvey / editors-in-chief, Wendi S. Lazar, Gary R. Siniscalco. p. cm. v. 1. Europe. ISBN 978-1-57018-926-5 (vol. I) -- ISBN 978-1-57018-935-7 (vol. II)

1. Covenants not to compete. 2. Trade secrets--Law and Legislation. I.Lazar, Wendi S. II. Siniscalco, Gary R. K1769.R427 2006 346.02--dc22 20010046589

The materials contained herein represent the opinions of the authors and editors and should not be construed to be those of the American Bar Association or the Section of Intellectual Property Law. Nothing contained herein is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. These materials and any forms and agreements herein are intended for educational and informational purposes only.

Published by BNA Books1801 S. Bell Street, Arlington, VA 22202

bnabooks.com

International Standard Book Numbers:978-1-57018-926-5 (Vol. I)978-1-57018-935-7 (Vol. II)

Printed in the United States of America

1-1

CONFIDENTIALITY, TRADE SECRETS, AND OTHER DUTIES AND RESTRICTIVE COVENANTS IN A GLOBAL ECONOMY—

A COMPARATIVE OVERVIEW OF THE TREATISE*

I. Introduction ................................................................. 1-2 II. Comparing U.S. and Foreign Law on Restrictive

Covenants .................................................................... 1-4A. Confidentiality and Trade Secrets

(Country Chapter Topics I.B.4.–4.a.) ................... 1-7B. Noncompetition Agreements (Country

Chapter Topic I.B.1.) ............................................ 1-11C. Nonsolicitation of Clients and Customers

(Country Chapter Topic I.B.2.) ............................. 1-18D. Nonsolicitation of Employees (Country

Chapter Topic I.B.3.) ............................................ 1-21E. Duty of Loyalty (Country Chapter

Topic II.A.) ........................................................... 1-24F. Notice Period and Garden Leave (Country

Chapter Topic III.A.) ............................................ 1-28 III. Where Privacy and Confidentiality Collide

(Country Chapter Topic I.B.4.c.) ................................ 1-29

*Wendi S. Lazar, Outten & Golden LLP, New York, NY and Gary R. Siniscalco, Orrick, Herrington & Sutcliffe LLP, San Francisco, CA. The authors would like to thank Katherine Blostein and Lauren Schwarztreich, associates, and Walter Gindin, a summer 2010 associate, at Outten & Golden LLP, New York, NY for their assistance with this chapter, along with Michael Weil, Orrick, Herrington & Sutcliffe LLP, San Francisco, CA. An earlier draft of portions of this chapter was published in 24 Lab. Lawyer No. 2 (Fall 2008), also copyright American Bar Association.

Restrictive Covenants: Int’l Survey1-2

IV. Comparing Enforcement Mechanisms in theUnited States and Abroad ........................................... 1-32A. Temporary Restraining Orders and Other

Injunctive Relief (Country Chapter Topic IV.D.) . 1-32B. Venue and Jurisdiction (Country Chapter

Topics IV.A.3., 1.) ................................................. 1-35C. Alternatives to Court: Arbitration/Mediation

(Country Chapter Topic IV.A.2.) .......................... 1-38D. Other Damages (Country Chapter Topic IV.H.) ... 1-39E. Conflict/Choice of Laws (Country Chapter

Topics IV.A.5., 4.) ................................................. 1-41F. Enforcement of Foreign Judgments (Country

Chapter Topic IV.K.) ............................................. 1-42 V. Drafting Advice........................................................... 1-44 VI. Conclusion .................................................................. 1-47

I. Introduction

This chapter provides an overview of the country chapters found in this two-volume treatise. The country chapters, in turn, provide in-depth analysis of the respective country law in the areas of:

• restrictive covenants,• trade secrets,• duties of employee loyalty and of fiduciaries, and• privacy concerns.

This chapter broadly canvasses key U.S. legal principles and compares them to the foreign law of other jurisdictions, while highlighting some of the fundamental differences. It also de-scribes some of the nuances where legal standards appear to be the same as in the United States but because of public policy, cul-tural norms, or codes in that jurisdiction, the analysis and result may be different. Finally, this chapter also remarks on particularly significant legal trends in certain countries or regions that share commercial interests or legal histories.

Overview of the Treatise 1-3I.

A common theme throughout the treatise is that while coun-tries address the same issues differently, they all start with the same premise: employers want to protect their proprietary infor-mation and trade secrets and their investments in customers and employees; employees need the flexibility to change employers, start a new business, continue to earn a living in their field and to do so with their “know-how” and the value of their ongoing cus-tomer relationships intact. The approach and solutions in different countries are the result of varying histories, cultures, constitutions, and philosophies concerning the rights and obligations of employ-ers and employees.1

While each country’s law and practice is unique, the reader will see that similarities exist among countries that share common jurisprudential roots:

• common law countries (including many Asian countries but not including the United States and New Zealand, dis-cussed below) that share a history of British colonization;

• civil law countries that were colonized by France or Spain (including many South American and Middle Eastern countries) with statutes and laws developed through the Napoleonic Code; and

• countries that developed through the German Civil Code (including the Nordic countries, Greece, and Portugal).

1 For example, because of its constitutional freedom of employment, Mexico does not recognize the validity of noncompetition provisions even during employment; however, employers may include noncompetition language in employment contracts and then terminate employees, with no liability, if those employees violate the non-competition agreement in the employment contract. And Mexican employers can agree with workers on a post-employment noncompetition agreement that, while invalid un-der Mexican law for the reason noted above, allows the employer to sue the employee in Civil Courts for return of the consideration for the post-employment noncompetition agreement. Moreover, there is no possibility of a TRO or injunction because the post-employment noncompetition provision is illegal—hence the emphasis on the consid-eration provided by the employer. This may seem like “taking the long way around” to get to a result similar to controls that can be imposed in other countries, but given the labor rights recognized by the Mexican Constitution for historical reasons, it is an approach that seems to “get the job done” as effectively as other approaches in other countries—and without the state-by-state variations seen in the United States.

Restrictive Covenants: Int’l Survey1-4 I.

Other countries are bi-juridical and do not fit neatly under any particular historical line, such as New Zealand, certain prov-inces in Canada, and in certain respects, the United States.

The chapter is not meant to be exhaustive in any particu-lar area (such as cross-border litigation2); instead, it is a guide to thinking locally while being attentive to the impact of interna-tional rules and regulations that affect employees and employers in the global workplace. Additional information on other aspects of countries’ labor and employment laws can be found in Interna-tional Labor and Employment Laws.3

II. Comparing U.S. and Foreign Law onRestrictive Covenants

In the United States, nearly all covenants and trade secrets law is state-based, not federal-based. In fact, there is so much state law and it is so varied that four different treatises have been pub-lished by BNA and the ABA Section of Labor and Employment Law on this subject.4 In most other countries, the law is federal/nationwide, with the notable exception of Canada where the law may be different from province to province.5

Some key initial differences need to be kept in mind when comparing this aspect of U.S. employment law to virtually every other country. Most other countries:

2 This overview chapter only touches upon issues such as cross-border and lo-cal litigation. For further discussion of this topic, see David A. Lowe, Litigation of International Employment Disputes, International Labor and Employment Laws, Vol. IB, 100-1 (William L. Keller & Timothy J. Darby, eds., 3d ed. 2009), and the chapter on EU cross-border litigation at p. 3-1 et seq. in this treatise.

3 International Labor & Employment Laws (William L. Keller & Timothy J. Darby, eds., 3d ed. 2009).

4 Brian M. Malsberger, Covenants Not to Compete: A State-by-State Survey (7th ed. 2010); Brian M. Malsberger, Employee Duty of Loyalty: A State-by-State Survey (4th ed. 2009); Brian M. Malsberger, Trade Secrets: A State-by-State Survey (3d ed. 2006); Brian M. Malsberger, Tortious Interference in the Employment Context (3d ed. 2010).

5 See the chapter on Canada (“Under the Canadian constitution and the federal statutes creating the territories, the provinces and territories have exclusive legislative powers over employment in all but a few industries.”).

Overview of the Treatise 1-5II.

• require written employment contracts for all employees;• have specific minimum notice periods for termination by

the employer and/or employee;• have labor courts that deal specifically with employment

issues;• do not favor or actually prohibit private arbitration

arrangements;• have labor codes that specifically spell out employee du-

ties during employment, thereby eliminating the need for noncompetition/nonsolicitation agreements during employ-ment, though employers may still include them in employ-ment contracts/codes of employee conduct;

• have statutory limitations on the length of post-employment noncompetition restrictions.

In the United States, an individual’s duties to the former em-ployer may arise as a matter of common law and apply regardless of whether they were specifically provided for in an employment agreement.6 Because most private sector employment relationships in the United States are at-will and employees can be fired for any reason7 or no reason, there are no U.S. statutes that dictate notice, garden leave,8 or termination provisions or special courts whose sole mission is to protect the rights of employees. Moreover, un-like in many other countries, the U.S. Constitution does not guar-antee the right or freedom to work. Although historically certain

6 See e.g., Lamorte Burns & Co. v. Walters, 770 A.2d 1158, 1166 (N.J. 2001) (“Even in the absence of an [employment] agreement, however, the [common] law pro-tects confidential and proprietary information.”).

7 Except for a statutorily enumerated, unlawful reason, such as gender, race, na-tional origin, and religion. See Title VII of the Civil Rights Act.

8 Garden leave is a term that refers to an employer requiring an employee who has given notice or has been terminated to depart the workplace while continuing to pay the employee during the applicable notice period. In some countries and industries the practice also may involve the use of lengthier notice periods than customary or speci-fied by law, if permissible. The continuation of the employment relationship during a period of garden leave means that the employee remains bound by the employment contract and the duties thereunder. See Additional Topic 52.41.1 in Covenants Not to Compete: A State-by-State Survey (Brian Malsberger et al. eds., 6th ed. 2008); M. Scott McDonald & Jacqueline Johnson Lichty, Drafting and Enforcing Covenants Not to Compete 373–83 (2009).

Restrictive Covenants: Int’l Survey1-6 II.

common law principles support freedom to contract, American law and American courts, unlike many other countries, do not favor the employee over the employer in protecting those rights or find a conflict in protecting the business interests of an employer over the personal freedom and rights of the employee. Finally, in the United States, again unlike many other countries, there is a much lower expectation of privacy in the workplace and, there-fore, employers are free, with certain limitations, to monitor and collect data on their employees. Moreover, such data, if collected or created at the workplace or with the employer’s equipment, is generally the employer’s property.

Some common law countries, such as Australia, New Zea-land, Singapore, and Hong Kong, are similar to the United States in this narrow approach to employee rights. But in many other common law and civil law countries, specific statutes and in some instances, a country’s constitution, afford greater rights and pro-tections to employees. For example, in many countries outside the United States, employees cannot be terminated without notice or just cause, and if they are, contract provisions such as noncompeti-tion or nonsolicitation agreements are deemed void because of the breach itself. To be enforceable, the duties owed to an employer during and post employment may also be statutorily defined or agreed to in a written contract and through a bargaining process.

Many foreign jurisdictions also require that other conditions (such as financial consideration) be met before an employer can limit an ex-employee’s ability to engage in a competitive business or otherwise limit on the employee’s future employment by impos-ing post-employment restrictive covenants. Even the definition of wages is vastly different in many countries, and fair compensation in exchange for post-employment obligations may require payment of full remuneration of salary, bonus, and all employment benefits.

Enforcing restrictive covenants in the United States usually begins with injunctive relief; in contrast, some countries have no procedure to (or refuse to allow civil procedures that would) deny an employee the freedom to work and restrain an employee from accepting new employment. In addition, a country’s data protec-tion and privacy laws may limit litigation against employees for

Overview of the TreatiseII.A. 1-7

abuse of confidential or proprietary information.9 Thus, because many countries have labor codes and specialized courts for em-ployment issues, the landscape of litigation involving restrictive covenants is substantively different from the United States and often favors the employee’s concerns over those of the employer.10

A. Confidentiality and Trade Secrets(Country Chapter Topics I.B.4.–4.A.)

One common employee obligation prohibits using or dis-closing the former employer’s confidential information and trade secrets during and post employment. In the United States, an em-ployee’s duty not to disclose or use confidential information arises under common law and therefore need not be expressly contracted to be enforceable.11 In contrast, under the laws of many foreign jurisdictions, no comparable post-employment duty exists un-less expressly set forth in a contract. In some countries (including Germany, Japan, and Mexico), post-employment confidentiality clauses are considered against public policy, and therefore these jurisdictions will only prohibit post-employment disclosure of ac-tual trade secrets.12

While many international labor courts recognize an implied obligation of confidentiality in employment contracts, the defini-tion of “confidential” varies and so does the extent of the obli-gation. In countries such as Chile, Mexico and Germany (where

9 See generally chapters on EU member countries. See also the chapters on New Zealand and Hong Kong.

10 See the chapter on Luxembourg. In Luxembourg there is a higher standard for proving the causal link between a breach of a covenant and the damages requested.

11 See the chapter on the United States.12 For example, Japanese courts typically refuse to impose a duty of confidential-

ity after termination because, even where there is general agreement among the par-ties concerning noncompetition, the contract as drafted does not clearly describe the extent and limits of the employee’s post-employment duty. See the chapter on Japan. See also Takashi Araki, Legal Issues of Employee Loyalty in Japan, 20 Comp. Lab. L. & Pol’y J. 267, 275 (1999) (citing The Chubu Kikai Seisakujo Case, 522 Hanrei Jiho 83 (Kanazawa Dist. Ct., Mar. 27, 1968)). In Germany, a confidentiality clause that imposes post-employment confidentiality on a large number of matters without speci-fying them as trade secrets is invalid. See the chapter on Germany; see also the chapter on Mexico, where only the employer’s trade secrets are protected post employment.

Restrictive Covenants: Int’l Survey1-8 II.A.

employees’ freedoms are generally favored over the employer’s business interests), the definition of confidential information is closer to the U.S. definition of a trade secret, requiring that the in-formation be highly proprietary to be considered protectable post employment.13 In other jurisdictions (including the United King-dom and Canada), the employee is only prohibited from dissemi-nating or using the company’s confidential information and trade secrets for his or her own benefit during the contract period,14 and post employment the employee (now ex-employee) is only pro-hibited from disclosing trade secrets—not confidential informa-tion—unless the contract specifically states otherwise.15

Many jurisdictions recognize employees’ freedom to work by refusing to restrain employees from taking and using the knowl-edge (“know-how”) they acquired in the regular course of their work when they leave for a competitor.16 In France, Italy, Chile, Germany, and other code countries, the concept in some U.S. ju-risdictions that know-how may be a protectable employer interest post employment is alienating.17 There, absent a contractual post-employment obligation or misuse or misappropriation of a trade secret, the employee is free to use the professional knowledge and skills acquired in his or her previous employment.18 Any concept of inevitable disclosure adopted by some U.S. courts would also be

13 See the chapters on Chile, Mexico, and Germany.14 Robb v. Green, [1895] 2 Q.B. 315 (Eng.); Faccenda Chicken Ltd. v. Fowler, [1986]

1 All E.R. 617 (Eng.); See generally Bob Hepple, The Duty of Loyalty: Employee Loyalty in English Law, 20 Comp. Lab. L. & Pol’y J. 205, 221 (1999).

15 See generally the chapters on the United Kingdom and Canada. The UK Court of Appeal identified the following aspects in differentiating between trade secrets and other information which does not need post-employment protection unless a contract exists: (i) was the information given to only a limited number of employees; (ii) did the employer inform the employee about the confidentiality of the information; (iii) can the confidential information be easily separated from other information acquired by the employee during the course of employment. Faccenda Chicken Ltd. v. Fowler, [1986] 1 All E.R. 617; Lancashire Fire Ltd. V. S.A. Lyons & Co. [1996] F.S.R. 629; see also Bob Hepple, The Duty of Loyalty: Employee Loyalty in English Law, 20 Comp. Lab. L. & Pol’y J. 205, 221–22 (1999).

16 See the chapters on France, Italy, Chile, and Germany. But see the chapter on Indonesia, where “know-how” can be protected by a confidentiality provision in an agreement.

17 See the chapters on Australia, Italy, Ireland, France, Chile, Germany and the United Kingdom.

18 Id.

Overview of the TreatiseII.A. 1-9

unacceptable in most non-U.S. jurisdictions that highly value an employee’s freedom to move from one job to another in their field. India, the United Kingdom, Germany, France, Bulgaria, Australia, and Mexico are just a few of the many countries analyzed in this treatise that do not recognize the concept of inevitable disclosure.19

For example, Ireland recognizes an element of sanctity for the contents of an employee’s mind.20 There, employees are free to use skills or knowledge acquired at work (except for trade secrets) in future employment.21 Finland also allows employees to use “know-how,” defined as “memory-based information.”22 These two coun-tries have also articulated policies protecting an employee’s ability to use mental know-how without limit in future jobs. In Canada, employees are free to communicate an employer’s confidential information after their employment ends.23 In contrast, although German employment contracts carry an implied employee obliga-tion to respect the employer’s confidential information during the term of employment, only a limited express duty will continue post employment, and only to the extent that the employee’s future career is not adversely impaired by enforcement.24 In Turkey, on the other hand, the only restriction on post-employment nondisclo-sure is that the employee cannot disclose the employer’s confiden-tial information in a way that would cause unfair competition.25 In India, several intellectual property laws protect trade secrets or confidential information.26

19 See the chapters on India, the United Kingdom, Germany, France, Bulgaria, Australia, and Mexico.

20 Kelly Irene Phair, Note, Enabling American High-Tech Companies To Protect Their Secrets Abroad: A Comparative Analysis of Irish and American Trade Secret Regulation, 24 Hastings Int’l & Comp. L. Rev. 507, 525 (2001).

21 See the chapter on Ireland.22 Erika C. Collins, Labor and Employment Developments From Around the

World, 38 Int’l Law. 149, 160 (2003). See the chapter on Finland.23 However, employees may not communicate customer lists and sales information

such as the cost to the employer of materials. See the chapter on Canada. Similarly, in China, customer lists are considered trade secrets, and are therefore never subject to disclosure or use by a former employee. See the chapter on China.

24 See the chapter on Germany. 25 See the chapter on Turkey.26 See the chapter on India (listing The Copyright Act 1957, The Patents Act 1970,

The Trade Marks Act 1999, and The Information Technology Act 2000).

Restrictive Covenants: Int’l Survey1-10 II.A.

In contrast to many jurisdictions which, absent a specific agreement, allow employees to communicate an employer’s con-fidential information after their employment ends, Denmark has a three-year statutory provision prohibiting employees from pass-ing on trade secrets post employment.27 While Danish law highly favors and protects employees to the point of the nonenforcement of other restrictive covenants post employment, in Denmark there is no statutory definition of “trade secrets” and Danish courts as a result have applied the statute broadly to protect customer lists and other confidential information that might not rise to the level of trade secrets in other jurisdictions.28

In most jurisdictions outside the United States, senior em-ployees are held to a higher standard of confidentiality than those working below them. For example, in China, senior executives and technical personnel (who are viewed as more likely to have ac-cess to sensitive information) are held to a strict duty of confiden-tiality after the termination of the employment relationship and even in the absence of any post-employment restrictive covenant.29 Similarly, in Spain and Turkey, higher employee positions warrant higher confidentiality protection for the employer’s information.30 In Indonesia, certain professions have distinct laws and regulations that govern their use of confidential information; for example, the medical and financial services professions are governed by sepa-rate confidentiality rules.31

In most major commercial jurisdictions (including the United States, the United Kingdom, China, Japan, Mexico, France, Ger-many, and Canada), the misappropriation and misuse of trade se-crets is against the law. An employee in those jurisdictions who discloses trade secrets faces substantial liability under the civil

27 See the chapter on Denmark. See also Section 19(2) of the Danish Marketing Practices Act, available at http://www.consumerombudsman.dk/Regulatory-framework/Danish-Marketing-Practices-Act/marketingpractisesact#19.

28 See the chapter on Denmark.29 See the chapter on China.30 See the chapters on Spain and Turkey.31 See the chapter on Indonesia.

Overview of the Treatise 1-11II.B.

law and, sometimes, is liable under criminal law as well.32 Addi-tionally, many countries such as China, Brazil, Bulgaria, France, Indonesia, Poland, and Germany criminalize the misappropriation of trade secrets and hold liable not just the employee but third-party recipients of misappropriated trade secrets.33 How these crimes are treated differs depending on the rights of employees in those jurisdictions. For example, in France, where employee rights are favored, a court will not impose criminal penalties for misap-propriation of trade secrets if the employee had no intent to cause harm to his or her employer in disclosing the information.34

In sum, what is treated as protectable trade secrets, the scope of protection and non-disclosure, and the penalties available (civil or criminal), vary among countries. Moreover, the duty not to dis-close confidential information in jurisdictions outside the United States is often narrow and may encompass only the obligation not to disclose unique or specialized technical information or trade secrets learned during employment. While these obligations may survive the end of the employment relationship, the duty of loyalty and general confidentiality principles typically end when employ-ment terminates, unless there is a contractual relationship or stat-ute that states otherwise.35

B. Noncompetition Agreements(Country Chapter Topic I.B.1.)

The most controversial post-employment restriction found in many U.S.-drafted agreements involves noncompetition, which prohibits an employee from working for competitors or engaging in competitive business activities during and after employment

32 See the chapters on Mexico, China, the United States, the United Kingdom, New Zealand, Japan, Bulgaria, Indonesia, France, Germany and Canada. See also the chapter on Poland (stating that in Poland, the statutory protection for trade secrets ends three years after the termination of employment).

33 See the chapters on Poland, Germany, China, Indonesia, France, Brazil and Bulgaria.

34 See the chapter on France.35 For example, in the UK, any post-employment limitation on competition or the

use of confidential information can only be imposed by an express provision in the employment contract. See the chapter on the United Kingdom.

Restrictive Covenants: Int’l Survey1-12 II.B.

ends.36 In the United States, only three of the fifty states (principally California) have a strong public policy against restrictive noncom-petition agreements post employment.37 However, in some foreign jurisdictions, such provisions fundamentally violate an employee’s right to work and earn a living and even remuneration will not cure them.

A key issue addressed in this treatise is the different rules and approaches to drafting and enforcing restrictive covenants. Many employers try to develop and impose a uniform set of restrictions in all their employee agreements, regardless of geography. As this treatise shows, such efforts typically will fail. Employees and em-ployers and their respective counsel all need to be cognizant of the relevant nation’s law that will be applicable in the respective jurisdictions where the employee will work and resides.

In countries that tolerate noncompetition restrictions, the factors for evaluating them are extremely narrow and generally take into account the position, the compensation, notice or garden leave, the bargaining power of the employee, and the “shelf life” of any trade secrets.38 Most jurisdictions limit the restrictive term to one year (unless a key employee is involved),39 which is in sharp contrast to the United States, where some courts find that even a term of five years is enforceable for certain skilled profession-als and highly specialized employees. Generally, a restriction on competition must be negotiated at the start of employment to be enforceable in many non-U.S. jurisdictions and the consideration must be separate from wages. Different national rules on conflict

36 See the chapter on the United States. See generally Plate Fabrication & Mach., Inc. v. Beiler, No. 05-2276, 2006 U.S. Dist. LEXIS 52 (E.D.P.A. 2006); Campbell Soup Co. v. Desatnick, 58 F. Supp. 2d 477 (D.N.J. 1999).

37 However, as mentioned in the U.S. chapter, the economic and legal policy con-siderations favoring broad, open competition are described in an excellent article showing how employers in Silicon Valley in California, operating without noncom-petition restrictions, were far more successful than employers along Route 128 in Massachusetts, where strong noncompetition restrictions were in place. See the chapter on the United States.

38 See the chapters on New Zealand, Hong Kong, Canada, Ireland and the United Kingdom.

39 See generally the chapter on Italy. In Italy the civil code dictates the time peri-ods allowed for certain levels of employee and for certain types of restrictions.

Overview of the Treatise 1-13II.B.

of laws and cross-border enforcement will also contribute to the outcome.

In most courts in the United States, a noncompetition agree-ment will be deemed “reasonable and, therefore, enforceable, where it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public.” 40 While a “legitimate employer interest” varies in the United States from state to state, generally, provisions restrict-ing post-employment work will justify enforcement of reasonable restrictions.41

Outside the United States, legislatures and courts in various common law and civil law jurisdictions have traditionally disfa-vored noncompetition agreements, based on the view that such restrictions promote anti-competitive behavior, restrain free trade, and inhibit the flow of labor.42 On the other hand, in the United Kingdom, Australia, New Zealand, and Canada, noncompetition agreements are part of a general law of contracts, in which un-reasonable restraints on trade and restrictions on the free flow of labor are presumptively void as against public policy.43 Courts in the United Kingdom and Ireland will generally invalidate any post-employment noncompetition provision that serves no other purpose but to preclude an employee from competing against a former employer.44 However, in practice, this standard appears to

40 See the chapter on the United States (quoting Scuhalter v. Salerno, 653 A.2d 596, 598 (N.J. Super. Ct. App. Div. 1995)); see also Gilman & Ciocia, Inc. v. Randello, 55 A.D.3d 871 (N.Y. App. Div. 2d Dep’t 2008).

41 See the chapter on the United States. 42 See Michael J. Garrison & John T. Wendt, The Evolving Law of Employee

Noncompete Agreements: Recent Trends and an Alternative Policy Approach, 45 Am. Bus. L. J. 107, 113–14 (2008).

43 See Gillian Lester and Elizabeth Ryan, Choice of Law and Employee Restrictive Covenants: An American Perspective, 31 Comp. Lab. L. & Pol’y J. 389, 390 (2009) (stating that covenants not to compete “are presumptively unenforceable at common law on public policy grounds”). See also Bob Hepple, The Duty of Loyalty: Employee Loyalty in English Law, 20 Comp. Lab. L. & Pol’y J. 205, 210 (1999) (stating that “ju-dicial policy [in England] came to accept in the 19th and 20th centuries that although restraints on competition are prima facie void, they can be justified if they are reason-able and not contrary to the public interest”); see also the chapters on New Zealand and Canada.

44 The United Kingdom is comprised of three distinct legal systems: England and Wales, Scotland, and Northern Ireland. However, “for the purposes of employment law the U.K. generally can be treated as one national jurisdiction, with no major dif-

Restrictive Covenants: Int’l Survey1-14 II.B.

be changing in the United Kingdom, as courts are enforcing these provisions more frequently even though they are prima facie void on public policy grounds as restraints on trade. Also, many com-panies (particularly in the United Kingdom) have begun to move away from noncompetition agreements in order to avoid litigation.Instead, they use garden leave clauses, which have proved even more enforceable.45

Consideration is an important element in evaluating noncom-petition agreements, especially in countries such as the United States, the United Kingdom, Brazil, Canada, New Zealand, Japan, and Hong Kong.46 Of course, in the United States, consideration may be the offer of employment itself where the employment at-will doctrine is followed.47 Unlike most U.S. states, the Canadian

ferences on a provincial or federal basis.” United Kingdom, in International Labor and Employment Laws 8-1, 8-2 (William L. Keller & Timothy J. Darby, eds., 3d ed. 2009).

45 However, UK courts emphasize that in order to enforce a garden leave the em-ployee’s contract must have an express provision in this regard. If there is no express provision, the courts look at whether the employee has an implied right to work, and therefore the garden leave would not be enforced. See SG & R Valuation Service Co. v. Boudrais & Others, [2008] EWHC 1340 (enforcing garden leave in the absence of a contractual agreement containing a garden leave provision because employees’ actions—taking confidential information from employer and other wrongdoing—demonstrated they were not ready or willing to work). But see Symbian Ltd. v Christensen [2001] I.R.L.R. 77 (a clear garden leave clause will only be enforced to the extent that it is reasonable); see also William Hill Organisation Limited v. Tucker, [1998] I.R.L.R. 313 (court refused to grant an injunction where the employment con-tract did not contain a garden leave provision). See also, Greg T. Lembrich, Note, Garden Leave: A Possible Solution to the Uncertain Enforceability of Restrictive Employment Covenants, 102 Colum. L. Rev. 2291, 2305 (2002).

46 See the chapters on the United States, the United Kingdom, Australia, Brazil, Canada, New Zealand, Japan, and Hong Kong; M. Scott McDonald & Jacqueline Johnson Lichty, Drafting and Enforcing Covenants Not to Compete 469 (2009).

47 See the chapter on the United States. See generally Tuskey v. Volt Info. Scis., Inc., No. 00CIV7410DABGWG, 2001 WL 873204, at *4 n.2 (S.D.N.Y. 2001) (stating that “[c]ontinued employment is adequate consideration for agreements entered into by the parties after employment has commenced”); Copeco, Inc. v. Caley, 632 N.E.2d 1299 (Ohio App. 5th Dist. 1992) (“A noncompetition agreement, like any other con-tract, must be supported by consideration. Adequate consideration is present where the restrictive covenant is entered into by the employee at the time the employee accepts employment.”); See Judge Colin Sara, “Non Competition Clauses in Labour Contracts–United Kingdom: XIVth Meeting of European Labour Court Judges,” Int’l Labor Org. (Sept. 4, 2006), available at http://www.ilo.org/public/english/dialogue/ifpdial/downloads/judges06/uk1.pdf (stating that at the formation of

Overview of the Treatise 1-15II.B.

and UK approach assumes that continued employment alone can-not support a noncompetition provision signed after the time of hire (i.e., after the formation of the employment contract).48 There-fore, noncompetition clauses in Canada and the United Kingdom entered into during employment or after employment ends must be supported by new consideration.49

In other common law jurisdictions (such as Australia, Can-ada, New Zealand, Hong Kong, and Singapore), courts evaluate the enforceability of these restrictions within a similar analytical framework as many U.S. courts, but with a significantly different focus. The courts in these jurisdictions will enforce noncompeti-tion clauses in employment contracts only if they are “narrowly tailored to address actual and legitimate business interests,” are reasonable as between the parties, and are not contrary to the pub-lic interest.50 Because many U.S. covenants are not bargained for,

the employment relationship, “[t]here is no requirement for additional consideration [in the United Kingdom]. The fact that the employee is paid a salary is treated as suffi-cient consideration for the covenant”); M. Scott McDonald & Jacqueline Johnson Lichty, Drafting and Enforcing Covenants Not to Compete 469 (2009) (stat-ing that in Canada, “[a]t the time of hiring, it is not essential to provide separate con-sideration for each restrictive covenant because the offer of employment in and of itself may serve as the consideration for all obligations in the agreement”); the chapter on New Zealand (“Where a non-compete is included in an employment agreement from the outset, it is not necessary to provide ‘extra consideration’ or a ‘premium’ for the covenant over and above what is provided by the mutual exchange of promises in the underlying employment agreement”).

48 See the chapters on the United Kingdom and Canada. See also Alison Wallace, The Lex Mundi Noncompetition Survey, Lex Mundi Labor and Employment Practice Group 37 (2008), available at https://www.lexmundi.com/images/lexmun-di/PDF/noncompetition_survey/noncompetition_Survey.pdf (stating that in England when restrictive covenants are “included in a binding settlement agreement at the end of the employment relationship . . . the employee often receives a modest payment for accepting the restrictions”); Connie Reeve, The Lex Mundi Noncompetition Survey, Lex Mundi Labor and Employment Practice Group 19 (2008), avail-able at https://www.lexmundi.com/images/lexmundi/PDF/noncompetition_survey/noncompetition_Survey.pdf (stating that in Canada, there is no requirement that the employer compensate the employee in order for a noncompetition provision to be en-forceable “unless an employer is trying to introduce covenants during the employment relationship; [c]ontinued employment is not consideration so some other consideration must be offered to obtain an enforceable covenant”) (emphasis added).

49 See the chapters on the United Kingdom and Canada.50 See the chapters on Australia, Canada, New Zealand, Hong Kong, and Singapore.

See also M. Scott McDonald & Jacqueline Johnson Lichty, Drafting and Enforcing Covenants Not to Compete 468 (2009).

Restrictive Covenants: Int’l Survey1-16 II.B.

but are required by employers as a condition of employment, and because the employees are at-will, the covenants would likely be unenforceable as a matter of public policy in these other common law jurisdictions.

In France, the legislature has not codified the laws governing restrictive covenants, although the French Labor Code establishes the freedom to work and Article L.1121-1 of the Labor Code states that the rights of individuals cannot be restricted if the restrictions are not justified by the nature of the job to be performed and are not proportionate to the goal sought. Accordingly, French law may be closer to a common law analysis for purposes of noncompeti-tion issues than its civil law neighbors.51

Post-employment noncompetition agreements are common in France, and are presumptively valid and enforceable as long as the right to freedom of work is respected.52 However, the test for valid-ity demands not only that the employer prove an extremely high level of need for business protection, but that the provision not prevent the employee from working in his or her trade. A noncom-petition provision will be valid only if it is essential to protect the company’s legitimate interests, is limited in time and space, takes into account the specificities of the employee’s position, and if the employer pays the employee substantial financial compensation.53

In contrast to France and the common-law nations, Den-mark, Germany, China, and Spain have statutes and regulations expressly governing the validity and enforceability of covenants not to compete and, therefore, have more regimented and concrete analysis and enforcement of them.54 Danish statutory law, for ex-ample, prohibits noncompetition agreements unless they concern “salaried employee[s] who [are] specially trusted employee[s].”55 Moreover, the noncompetition provisions must be agreed to at the start of employment and the rules for compensation are strict.56 If an employer decides not to hold the employee to the noncompeti-

51 See the chapter on France.52 During employment, the obligation not to work for a competitor is established

by the duty of loyalty. See the chapter on France.53 See the chapter on France.54 See generally chapters on Germany, China, Spain and Denmark.55 See the chapter on Denmark.56 Id.

Overview of the Treatise 1-17II.B.

tion provision that was previously agreed to, the employer could end up paying at least three times 50% of the employee’s gross monthly salary in a lump sum.57

In Germany, Section  74 of the Commercial Code requires that employers and employees execute a written agreement attest-ing to the existence and terms of the particular covenant,58 and sets the maximum term of an enforceable restrictive covenant at two years.59 Similarly, the Chinese Employment Contract Law states that noncompetition restrictions cannot exceed two years follow-ing the termination of employment. While the amounts differ, both German and Chinese laws mandate that employers compen-sate employees during the restriction period.60 Failure to provide compensation will void and make unenforceable the noncompeti-tion provision in both countries. Like Germany, Spain’s Workers’ Statute provides similar regulations governing noncompetition provisions.61

In Brazil, courts generally enforce post-employment noncom-petition agreements only if the employer has paid the employee additional compensation and if the clause is limited in scope and duration.62 In countries such as Chile and Mexico, the country’s Constitution protects freedom of employment and the courts will not readily enforce a noncompetition agreement because it would violate its citizens’ right to choose the work they do. While it is not illegal in either country to include a post-employment non-competition provision in an employment agreement, the chance of prevailing on enforcement is close to nil.63

There are also jurisdictions which never enforce a post-em-ployment noncompetition agreement. For example, India (despite its legacy as a British Commonwealth) voids without exception

57 Id.58 Because German law recognizes that employees owe a fiduciary duty to their

employer during the term of their employment, “there is no need to conclude a restric-tive covenant” during this period. See the chapter on Germany.

59 See the chapter on Germany (§74a (1) of German Commercial Code).60 See the chapters on Germany and China.61 See the chapter on Spain.62 See the chapter on Brazil.63 See the chapters on Chile and Mexico.

Restrictive Covenants: Int’l Survey1-18 II.B.

all post-employment noncompetition agreements,64 but views noncompetition provisions that are imposed during the course of employment to be legally valid.65 India’s Constitution confers upon its citizens a fundamental right to earn a living, which influences Indian laws with respect to the scope and applicability of restric-tive covenants.66 Similarly, in the Russian Federation courts rely on its Constitution and Labor Code in refusing to recognize or enforce any post-employment noncompetition agreements.67 Inter-estingly, Luxembourg also has constitutional restraints on com-petition and its statutes limit noncompetition agreements only to employees who leave employment to start their own business or perform freelance work.68

Finally, unlike the United States, many jurisdictions, both common law and civil code, require that noncompetition agree-ments be limited to key personnel and senior management with access to the employer’s trade secrets.69

C. Nonsolicitation of Clients and Customers(Country Chapter Topic I.B.2.)

In the various chapters of the treatise, restrictions on the so-licitation of customers, clients, and employees arise during the course of the employment relationship and after it ends. Most ju-risdictions recognize that employees owe their employers a duty of loyalty or fiduciary duty during the course of the employment

64 In India, however, limited noncompetition agreements will be enforced in the case of the sale of a business. See the chapter on India.

65 See the chapter on India. Section 27 of the Indian Contract Act 1872 states: “Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” Indian Contract Act 1872, avail-able at http://www.indiankanoon.org/doc/1431516/. This provision only invalidates post-employment noncompetition provisions, not restrictions during employment.

66 See the chapter on India.67 See the chapter on the Russian Federation.68 See the chapter on Luxembourg.69 See, e.g., chapters on China, Italy, and New Zealand (where position is one of

many factors). In China, an employee has access to “trade” secrets if he or she pos-sesses as any useful or technical information and business information which (i) is not generally known by the public; (ii) can bring business interest to its owner or rightful user; and (iii) has been safeguarded from disclosure by its owner or rightful user with reasonable measures.

Overview of the Treatise 1-19II.C.

relationship, and therefore prohibit employees from soliciting the employers’ customers, clients, or employees even in the absence of an express contractual provision.70 Notwithstanding this general unanimity, jurisdictions differ in their approach to enforceability of post-employment nonsolicitation provisions.

In many U.S. states, in addition to the common law recogni-tion of the duty of loyalty that prevents employees from “raiding” employers’ clients during employment, nonsolicitation provisions post employment will generally be upheld as long as they are rea-sonable and necessary to protect an employer’s legitimate business interest.71

In many jurisdictions, post-employment covenants not to solicit customers and clients are subject to the same, or similar, constraints as those that are imposed on post-employment cove-nants not to compete discussed above.72 As with post-employment noncompetition agreements, the over-arching concern is that post-employment nonsolicitation restrictions impose impermissible re-straints on trade and foster unfair competition.

In a host of countries (including Australia, the United King-dom, Canada, New Zealand, Japan, Hong Kong, France, and Lebanon), there is no national legislation expressly defining or gov-erning the nonsolicitation of customers and clients.73 In other ju-risdictions, such as China and Germany, nonsolicitation provisions are statutorily regulated. Courts in Canada, like the United States,

70 See the chapter on Canada. See also Jeffrey Goodman & Charlotte Wilson, Northern Exposure: An American’s Guide to the Canadian Law on Intellectual Property Rights and Restrictive Covenants in Contracts of Employment, 2009 Global Employer Institute Conference 9 (Washington, D.C., September 24-25, 2009) (stating that because of the common law duty of good faith implied in the employment relationship, “an employee may not . . . solicit the employer’s customers during the course of the employment relationship”). In other jurisdictions, like France, Lebanon, Spain and Germany, a fiduciary duty of loyalty and good faith provides the legal basis for prohibiting the solicitation of an employer’s customers, clients, and employees during the course of the employment relationship. See the chapters on France, Germany, Lebanon, and Spain.

71 See Kelly v. Evolution Markets, 626 F. Supp. 2d 364 (S.D.N.Y. 2009); Natsource LLC v. Paribello, 151 F. Supp. 2d 465 (S.D.N.Y. 2001).

72 See the chapters on the United States, Canada, the United Kingdom, Hong Kong, Japan and New Zealand.

73 See the chapters on Australia, the United Kingdom, Canada, New Zealand, Japan, Hong Kong, France, and Lebanon.

Restrictive Covenants: Int’l Survey1-20 II.C.

prioritize the protection of confidential information and trade se-crets, as well as the preservation of the employer’s connection with its customers, as legitimate business justifications for enforcing these provisions.74 Similarly, courts in the United Kingdom rec-ognize that these restrictions are most likely to be enforced if an employer strives to preserve the actual relationships or goodwill between the business and its customers.75

Similar to many courts in the United States, with respect to the scope of activity, courts in the United Kingdom, Canada, and Japan are more inclined to determine that a nonsolicitation provi-sion is reasonable if it restricts solicitation of clients and customers with whom the former employee has actually dealt during em-ployment.76 Interestingly, courts in Hong Kong will generally find these provisions reasonable if they impose a durational restriction commensurate with the time it takes a new employee to establish a relationship with his or her customers.77

Courts in France and Germany evaluate these provisions with reference to the same factors they use to evaluate noncompe-tition agreements.78 In Germany, under the statute governing the validity of nonsolicitation provisions, courts will enforce them so long as they: are in writing, reflect the legitimate interests of the employer, provide for compensation, do not exceed two years from the time of termination, and apply only to customers and clients with whom the former employee had actual contact.79 In France, the employer must provide compensation to the employee in order for the nonsolicitation agreement to be enforceable.80 Direct con-tact with clients is typically a universal factor for enforcement of client nonsolicitation provisions in Ireland, Italy, New Zealand,

74 Jeffrey Goodman & Charlotte Wilson, Northern Exposure: An American’s Guide to the Canadian Law on Intellectual Property Rights and Restrictive Covenants in Contracts of Employment, 2009 Global Employer Institute Conference, 11 (Washington, D.C., September 24-25, 2009).

75 See the chapter on the United Kingdom.76 See the chapters on the United Kingdom, Canada, and Japan.77 See the chapter on Hong Kong.78 See the chapters on France and Germany.79 See the chapter on Germany.80 See the chapter on France.

Overview of the Treatise 1-21II.D.

Germany, the United Kingdom and other countries discussed in the treatise.81

As with Germany, statutory law governs the analysis of nonsolicitation provisions in Spain.82 There, nonsolicitation pro-visions are not evaluated independently; instead, Spanish courts will enforce nonsolicitation provisions only if they form part of a noncompetition agreement and meet all of the enforceability re-quirements under the statute.83

As observed above, there are several countries where a non-solicitation clause would blatantly violate the constitutional rights of employees in their freedom to work and to earn a living post employment. For example, in Luxembourg, Mexico, and Chile, solicitation would have to rise to the level of unfair competition for a court to find the clause enforceable.84 To the contrary, in India, while noncompetition agreements are void post employ-ment, nonsolicitation provisions regarding clients and customers are enforceable during employment and post employment as long as they are for a limited time frame.85

There are also jurisdictions (such as Hong Kong) where the courts recognize that solicitation of clients and customers would be impossible to police and enforce, and have chosen not to do so.86 Distinct from this, in Singapore, the courts analyze these post-employment provisions by treating all employers’ clients and customers as belonging to the employer under the principle of agency law.87

D. Nonsolicitation of Employees(Country Chapter Topic I.B.3.)

Most jurisdictions recognize that employees breach a duty of loyalty or fiduciary duty to their employers if, during the course of

81 See, e.g., the chapters on Ireland, Italy, New Zealand, Germany, and the United Kingdom.

82 See the chapter on Spain.83 Id.84 See the chapters on Luxembourg, Mexico, and Chile.85 See the chapter on India.86 See the chapter on Hong Kong.87 See the chapter on Singapore.

Restrictive Covenants: Int’l Survey1-22 II.D.

employment, they solicit other employees to join them in a com-peting enterprise.88 Conversely, once the employment relationship terminates, many jurisdictions (including the United States) permit ex-employees to freely solicit and recruit their former colleagues absent an express contractual provision to the contrary.89

In the United States, many but not all state courts will up-hold nonsolicitation-of-employees agreements if a reasonable case is made that an employer needs to protect its investment in train-ing its staff and maintaining a competent workforce.90 Similarly, many jurisdictions consider post-employment “non-poaching” re-strictions to be “less anticompetitive” than post-employment non-competition provisions because they do not prevent an employee from practicing her trade or profession.91

In France, the courts will look to enforce a nonsolicitation-of-employees provision unless the clause is against public policy and obstructs an employee’s freedom to work.92 In Germany, ad-ditional consideration is not required for a post-employment non-solicitation-of-employees provision to be valid because it does not interfere with the former employee’s professional career.93 In China, employers and employees are free to include a nonsolicita-tion covenant in employment contracts, which will generally be binding and enforceable as long as it does not contradict the law in other respects.94 But, in Italy, provisions regarding nonsolicita-

88 See e.g., Jet Courier Serv., Inc. v. Mulei, 771 P.2d 486, 494 (Colo. 1989); chapters on Germany, France, Canada, Japan, Hong Kong, New Zealand, and the United States.

89 Louis Altman and Malla Pollack, 2 Callmann on Unfair. Comp., Tr. & Mono. § 16:44 (4th ed. 2009); see also the chapters on Germany and China.

90 See the chapter on the United States. See also Balasco v. Gulf Auto Holding, Inc., 707 So. 2d 858, 860 (Fla. Dist. Ct. App. 1998) (noting importance of workforce stability); Natsource LLC v. Paribello, 151 F.Supp. 2d 465 (S.D.N.Y. 2001); Merrill Lynch, Pierce, Fenner & Smith Inc. v. Ran, 67 F. Supp. 2d 764, 774 (E.D. Mich. 1999) (upholding as reasonable a one-year customer “anti-piracy” clause). But see Thomas Weisel Ptnrs. LLC v. BNP Paribas, 2010 U.S. Dist. LEXIS 11626 (N.D. Cal., Feb. 10, 2010) (distinguishing between a “no solicitation” and “no hire” clause, the court held that under California Business and Professions Code section 16600 a “no hire” agreement is void since it restrains mobility in much the same way as a covenant not to compete).

91 Louis Altman and Malla Pollack, 2 Callmann on Unfair. Comp., Tr. & Mono. §16:44 (4th ed. 2009). See also the chapters on the United Kingdom, France, Hong Kong, Japan, and Canada.

92 See the chapter on France.93 See the chapter on Germany.94 See the chapter on China.

Overview of the Treatise 1-23II.D.

tion of employees will not be enforced unless the solicitation was done with malice.95 In Hong Kong, nonsolicitation provisions are valid only for senior managers and only as regards their specific departments or units.96

Courts in most common law jurisdictions generally adhere to the familiar analytical framework that takes into account the legitimacy of the employer’s business interests in justifying the restriction, and its reasonableness. Courts in Australia, New Zea-land, and the United Kingdom will generally enforce these restric-tions if the employer demonstrates that it has a legitimate business interest in maintaining the stability of its workforce and if the cov-enant applies to senior executives or is limited to a defined group of employees.97 Courts in Canada, like the United States, will en-force a covenant not to solicit employees even though it does not stipulate the geographic scope, on the theory that the covenant applies to employees of a particular employer regardless of where it is located.98

Japan is unique among the common law jurisdictions in that its courts do not examine any specific factors when determining the enforceability of a particular nonsolicitation covenant. Rather, Japanese courts look to the specific job description in analyz-ing whether the solicitation would exceed the “reasonable scope of free competition.”99 The more senior the employee, the more justifiable the nonsolicitation restriction will be found to be.100 In

95 See the chapter on Italy.96 See the chapter on Hong Kong.97 See the chapters on New Zealand, the United Kingdom, and Australia.98 See Jeffrey Goodman & Charlotte Wilson, Northern Exposure: An

American’s Guide to the Canadian Law on Intellectual Property Rights and Restrictive Covenants in Contracts of Employment, 2009 Global Employer Institute Conference, 12 (Washington, D.C., September 24-25, 2009); First Health Group Corp. v. Nat’l Prescription Adm’rs, Inc., 155 F. Supp. 2d 194 (M.D. Pa. 2001) (applying Illinois law) (stating that [t]he lack of geographic limitation . . . is of no concern, as it applies to employees of First Health, and is therefore reasonably limited”).

99 See the chapter on Japan.100 Japanese courts will enforce bans on post-employment solicitation of employ-

ees because such restrictions do not significantly hinder the former employee’s ability to secure a livelihood. See the chapter on Japan. Poaching by a former employee after the termination of his or her employment may give rise to tort liability if conducted in bad faith, but will generally not impose contractual liability on the former employee.

Restrictive Covenants: Int’l Survey1-24 II.D.

India, nonsolicitation of employees is not subject to any statute or regulation, and remains an unsettled issue for its courts.101

E. Duty of Loyalty (Country Chapter Topic II.A.)

In almost every jurisdiction, employees owe a duty of loyalty to their employers during the employment relationship, but any duty post employment must be expressly written into an employ-ment agreement in the form of a restrictive covenant. In the United States, most courts recognize some form of a post-employment fi-duciary duty, and some recognize a duty of loyalty stemming from the employment relationship. These duties fall within the common law and exist outside of a written contract.102 Similarly, in most common law countries, including Australia, Hong Kong, and the United Kingdom, the duty of loyalty is defined by common law.103 In other civil or code jurisdictions (including Bulgaria, Germany, France, Japan, Lebanon, Chile, and the Russian Federation), the duty of loyalty is defined by statute and implied in employment contracts as part of an employee’s general obligations.104 Again, India is unusual in that there is no specific law outside of express provisions in an employment agreement that mandates loyalty to an employer during or post employment, but rather it is a moral obligation.105

Despite the differing features and origin, the duty of loyalty generally requires employees to act in a manner that supports the

Takashi Araki, Legal Issues of Employee Loyalty in Japan, 20 Comp. Lab. L. & Pol’y J. 267, 279 (1999).

101 See the chapter on India.102 Breach of the duty of loyalty has been found to exist in a variety of employees’

acts including secretly organizing a competing business using the employer’s customer lists; and using trade secrets for the benefit of another employer. See Mega Group, Inc. v. Halton, 736 N.Y.S.2d 444, 447 (App. Div. 2d Dep’t 2002); Laro Maint. Corp. v. Culkin, 700 N.Y.S.2d 490, 492 (App. Div. 2d Dep’t 1999); North Atl. Instruments v. Haber, 188 F.3d 38, 47-48 (2d. Cir. 1999).

103 See the chapters on Hong Kong and the United Kingdom. See also the chapter on Australia where, in addition to being part of common law, the duty of loyalty is included in Australia’s Corporations Act 2001 (Cth).

104 See the chapters on France, Japan, Bulgaria, Germany, Chile, the Russian Federation, and Lebanon.

105 See the chapter on India.

Overview of the Treatise 1-25II.E.

business interests of their employers. In doing so, it generally gov-erns four major areas of conduct arising during the employment relationship: entering into competition against the employer, dis-paraging the employer, violating confidentiality, and bringing or participating in legal action against the employer.

With regard to competing with one’s employer, taking prepa-ratory steps prior to leaving employment is allowed in some juris-dictions. For example, in the United Kingdom, British law permits employees to solicit other employees if doing so is merely prepara-tory and not an actual act of competition.106 Similarly, Canadian law allows some competition in pre-termination preparation dur-ing the employee’s free time so long as the employee does not utilize confidential information or solicit the employer’s custom-ers.107 In Germany, employees can prepare to compete with their employer so long as the preparation does not interfere with the employer’s business.108

In both Spain109 and New Zealand,110 the law allows employ-ees to engage in competing enterprises so long as their employers’ business is not significantly impacted. In contrast, Hong Kong and Singapore demand absolute loyalty from employees and prohibit them from competing during the term of employment; however, these duties end when employment ends.111 In Japan, competition with an employer is also forbidden, but this may be a principle based on its history of lifelong employment. China, under pres-sure from international investors and foreign corporations, incor-porated anti-competition provisions into its Employment Contract

106 See the chapter on the United Kingdom. The courts are more likely to find a breach of loyalty where the solicited employee is a high-ranking officer. See Marshall v. Industrial Systems & Control Ltd., [1992] I.R.L.R. 294 (finding solicitation of senior employee a breach of employee’s duty justifying dismissal).

107 See the chapter on Canada.108 See the chapter on Germany.109 See the chapter on Spain.110 See the chapter on New Zealand; See generally Schilling v. Kidd Garrett Ltd.,

1 N.Z.L.R. 243 (1977); Davis Trading Co. Ltd. v. Lewis, 2 E.R.N.Z. 272 (1993); Tisco Ltd. v. Communication & Energy Workers Union, 2 E.R.N.Z. 779 (1993).

111 See the chapters on Hong Kong and Singapore.

Restrictive Covenants: Int’l Survey1-26 II.E.

Law.112 Interestingly, Chile’s duty of “probity” as written in its labor code authorizes a “for cause” termination if an employee competes during employment, but the only available remedy is termination.113 Similarly, Mexican employers can terminate their employees for “just cause” if they compete during employment.114 In Brazil, under the Brazilian Labor Code an employer can also terminate an employee for cause for engaging in habitual negotia-tions to compete with the employer.115

Certain jurisdictions, such as Luxembourg, Chile and Den-mark, also limit post-employment duties to certain employees (such as those who are high-level, specially trained, or fiduciaries) and for only distinct periods of time.116 Luxembourg specifically does not include the duty of loyalty in its labor code but it is a gen-eral civil principle; its courts, however, have limited this duty post employment to a three-month period. 117

The universal principle that employees violate their duty of loyalty if they knowingly make false statements about their em-ployer or the employer’s products is seen throughout the treatise. French law provides that “agreements must be carried out in good faith.”118 The good-faith requirement is extended to the employment agreement, and creates a legal and moral obligation not to dispar-age one’s employer. Violation of that agreement is justification for immediate dismissal without severance and, if the disparagement is more serious, for legal action to recover damages caused by the employee.119 Similarly, in Bulgaria, New Zealand, and the Russian Federation, an employer may bring suit to recover damages caused

112 See the chapter on China; see e.g., Employment Contract Law art. 26 (stating that it is a violation of the Duty of Loyalty to “simultaneously [establish] employ-ment relationship[s] with others to the detriment of the performance of [the employee’s] tasks with the employer or [to fail] to terminate his employment with others when the same has been brought to his attention.”)

113 See the chapter on Chile.114 See the chapter on Mexico.115 See the chapter on Brazil.116 See the chapters on Denmark, Luxembourg, and Chile. 117 See the chapter on Luxembourg.118 French Civil Code §1134. This section of the Civil Code was established in

1804 and has been sustained without amendment to the present day. See also the chap-ter on France.

119 See the chapter on France. See also Jean-Emmanuel Ray & Jacques Rojot, Loyalty and Noncompetition in France, 20 Comp. Lab. L. & Pol’y J 225, 231 (1999).

Overview of the Treatise 1-27II.E.

to its business reputation by false statements made by an employ-ee.120 In Bulgaria, the duty prohibits the employee from making derogatory statements about the employer and its business, regard-less of veracity, and the employee breaches the duty whether he or she acts negligently or intentionally.121

Despite the general prohibition on speaking out against one’s employer, most jurisdictions provide some measure of protection for employees who speak out in the interest of public policy. In the United Kingdom and in other EU countries, statutory protection exists for employees who “blow the whistle” on illegal activity being conducted by their employers. However, in Germany and France, while a similar protection exists, an employee is statuto-rily required to exhaust all possible complaint processes within the employer’s business before disclosing information to the pub-lic.122 In the United States, whistleblowing standards differ state by state and offer various levels of protection to employees.123

The interplay of employee loyalty and legal action against one’s employer also presents a difficult balance between an em-ployee’s duty to the employer and the rights and interests of the employee as a private citizen. In many jurisdictions, the initiation of a lawsuit against an employer is a breach of an employee’s duty of loyalty. However, outside the United States, the rights of the em-ployee and public policy concerns weigh heavily in the employee’s favor. The duty of loyalty also yields in some jurisdictions124 to public policy concerns when the employer is being investigated by

120 See the chapters on the Russian Federation, Bulgaria and New Zealand (cit-ing New Zealand Airline Pilots’ Association v. Air New Zealand Ltd., 4 N.Z.E.L.C. 95580, 95586 (holding employees liable for damages caused to employer airline by false statements about employer’s airplane maintenance practices)).

121 See the chapter on Bulgaria.122 A special exception exists for employees who have information critical to pub-

lic health; those employees may contact a government agency to report the employ-er’s activities without exhausting the internal complaint process. See the chapters on France and Germany.

123 In addition to U.S. federal laws such as the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, U.S. states have whistleblower protections that differ. While the level of protection varies, most important is the fact that some statutes protect all employees while others only protect public employees. See Daniel P. Westman and Nancy M. Modesitt, Whistleblowing: The Law of Retaliatory Discharge (2d ed. 2005).

124 Including the United States, Canada, France, and Germany.

Restrictive Covenants: Int’l Survey1-28 II.E.

the government. Canada attempts to balance this concern; while protection is extended to employees who are subpoenaed as part of an investigation, the protection is not extended to employees who volunteer information harmful to the employer.125

F. Notice Period and Garden Leave(Country Chapter Topic III.A.)

In the United States and many other jurisdictions, notice or garden leave provisions are often used to prevent employees from working for the employer’s competitors for a period of time. In the United States, garden leave is most often used in the financial services area.

Notice periods are generally statutorily provided outside the United States and are calculated by years of service or by senior-ity. Often, employers are allowed to pay employees in lieu of no-tice. However, Hong Kong is unusual in that it allows either party to make payments in lieu of notice.126

As noted above, in the United Kingdom, an employee’s con-tinuing status as an “employee” on garden leave has led the courts to enforce garden leave provisions more often than the traditional noncompetition provisions.127 In other common law countries, like Australia and New Zealand, in order to enforce garden leave where the employee remains unemployed, the contract must specifically allow for it.128 Also, a court in these countries, when deciding on the temporal reasonableness of a noncompetition provision, will take into account whether there has been a garden leave period in the employment contract and often will set off the amount of time spent on garden leave.

In Germany, garden leaves are usually the length of the statu-tory notice period, and the noncompetition requirements of the garden leaves are governed by a specific statute.129 In jurisdictions allowing garden leave, the length of leave can be restricted by the courts or by statute. For example, in China, it is limited to 24

125 See the chapter on Canada.126 See the chapter on Hong Kong.127 Id.128 See the chapters on New Zealand and Australia.129 See the chapter on Germany.

Overview of the Treatise 1-29III.

months.130 Australia does not impose a statutory time limit on gar-den leave, but the period can be challenged under its restrictive covenant doctrine or by claiming a breach of contract.131

Technically, while garden leave does not exist in France, that country does have a similar concept (dispense de préavis) that al-lows an employee to be released from obligations at work during the notice period. The same is true in India, where notice periods are statutory. However, in France, the employee who has been re-leased from obligations can work during this period and does not owe a duty of loyalty to the former employer unless the employee is under an express noncompetition agreement with regard to new work.132

Finally, many jurisdictions do not enforce or recognize gar-den leave provisions, and view them as disguised noncompetition provisions and find them void and unenforceable.133 In Mexico, while in theory employers and employees can execute a similar provision called an “employment suspension agreement” for up to one year of garden leave, the Mexican Arbitration Board will likely find them null and void because they restrict the freedom to work.134

III. Where Privacy and Confidentiality Collide(Country Chapter Topic I.B.4.c.)

Every country surveyed in this treatise allows employers to use post-employment restrictions to protect their confidential in-formation from misuse or theft by employees. The definition of confidential information, however, varies from country to coun-try and yields different answers to the following question: to what extent can an employee’s privacy and ideas be restricted or con-trolled by an employer?

The fundamental difference between the United States and most of the countries surveyed in the treatise is that outside the

130 See the chapter on China.131 See the chapter on Australia.132 See the chapter on France.133 See the chapters on Chile and Luxembourg. 134 See the chapter on Mexico.

Restrictive Covenants: Int’l Survey1-30 III.

United States there is an unwaivable expectation of privacy in the public and the private workplace. For example, in some countries, monitoring, gaining access to employees’ computers, and video surveillance are all activities that are void ab initio or circum-scribed by statutes. The degree of access varies from country to country, however the net effect is that, in comparison, U.S. em-ployees have fewer guarantees of workplace privacy. As a result, actions outside the United States for an employee’s breach of duty may be unsuccessful where the employer violates the employee’s privacy rights in investigating/discovering the employee’s unlaw-ful activity. In addition, depending on the jurisdiction, employers who use a typical U.S. definition of confidential information in a non-U.S. employment agreement may contravene an employee’s right to privacy and render restrictive covenants in those agree-ments unenforceable and void. Therefore, foreign law privacy rights present special challenges to U.S. practitioners in drafting enforceable agreements and in trying to enforce those agreements worldwide.

Monitoring employees’ computers and video surveillance is against public policy in some EU countries, particularly when the information observed may be of a personal nature.135 Strong privacy rules and anti-monitoring policies developed after World War II, in reaction to anonymous reports (“denunciations”) and collusion with the Nazis in countries such as France, Luxemburg, Italy, and of course Germany.136 In these and other European nations, data protection is also a primary concern in the workplace. In coun-tries such as Australia, Hong Kong, the United Kingdom, Ireland, the Russian Federation, and New Zealand, employee monitoring is permitted but is more restricted than in the United States.137 While there may be some leniency in some jurisdictions, in the EU as a whole, it is difficult to submit in court certain evidence of email and video surveillance to prove an employee breach because data protection laws are actively enforced.

135 See Marisa Anne Pagnattaro & Ellen R. Peirce, Between a Rock and a Hard Place: The Conflict Between U.S. Corporate Codes of Conduct and European Privacy and Work Laws, 28 Berkeley J. Emp. & Lab. L. 375, 403–09 (2007).

136 See the chapters on Luxembourg, France, Italy and Germany.137 See the chapters on Australia, Hong Kong, New Zealand, Ireland, the Russian

Federation and the United Kingdom.

Overview of the Treatise 1-31III.

As a result, robust privacy laws in different nations have af-fected the employment relationship, including American compa-nies’ ability to implement certain codes of conduct. For example, both French and German authorities have invalidated U.S. com-panies’ attempts to monitor employees’ computers or implement anonymous hotlines to report wrongdoing or violations because of the conflicts with national privacy laws.138 Additionally, several Western European countries have enacted laws prohibiting the transfer of employees’ personal data in both their own countries and across country lines.139 Although India’s data protection laws were underdeveloped in the past, the Personal Data Protection Bill, which provides protection for an employee’s personal data, was pending before its legislature as of publication.140

In Spain, courts have supported an employer’s right to in-spect employee computers at work, including all documentation and contents therein, provided that the inspection is: (1) neces-sary to protect the property of the employer; (2) carried out at work during work hours; (3) respectful of the employee’s dig-nity and privacy; and (4) conducted in the presence of anotheremployee.141 Chile also allows employers access to employee in-formation, however, the guidelines for notice are strict and record-

138 See Marisa Anne Pagnattaro & Ellen R. Peirce, Between a Rock and a Hard Place: The Conflict Between U.S. Corporate Codes of Conduct and European Privacy and Work Laws, 28 Berkeley J. Emp. & Lab. L. 375, 403–09 (2007). In a French case, McDonald’s France attempted to impose a system where employee-generated complaints, including those concerning disclosure of company confidential informa-tion, would be sent to the company ethics department; the French Data Protection Authority held that it violated the French Data Privacy Law. La Commission Nationale de l’Informatique et des Libertés, Decision 2005-110 (May 26, 2005). In Germany, courts invalidated a portion of Wal-Mart’s global policy implementing an anonymous telephone hotline for employees to report violations as applied to German work-ers. Wal-Mart, Beschluss des Arbeitsgerichts Wuppertal vom, June 15, 2005, 5 BV 20/05 (F.R.G.) See Dr. Gerlind Wisskirchen, Dr. Christopher Jordan, and Anke Kuhn, “European Litigation Over U.S.-Mandated Internal Codes of Conduct” in Corporate Codes of Conduct on Labor Standards, International Labor and Employment Laws Vol. 1B (William L. Keller & Timothy J. Darby, eds., 3d ed. 2009).

139 See Gerlind Wisskirchen, Privacy and Global Employee Data Transfer, 2004 Computer L. Rev. Int’l 168, 173 (2004).

140 See the chapter on India. 141 See the chapter on Spain. See International Labor and Employment Laws

Vol. 1A, 6-31–6-32 (William L. Keller & Timothy J. Darby, eds., 3d ed. 2009).

Restrictive Covenants: Int’l Survey1-32 III.

ing of an employee’s private information is prohibited.142 Brazil’s Constitution protects intimacy, privacy, mail secrecy, and tele-phone conversation secrecy. Nevertheless, Brazilian employers may monitor employees’ activities as long as the employees’ con-stitutional rights are not abused and the employees are told that they may be monitored upon accepting the job.143 Similarly, while the Mexican Constitution establishes a right to personal privacy, a Mexican employer has the right to monitor technology used by employees if it discloses this practice to employees in a handbook or code of conduct. Notwithstanding, in Mexico, the employer cannot access employees’ private emails.144

In contrast to these safeguards, common law countries (in-cluding the U.K., Australia, New Zealand, and Hong Kong) seem to be moving away from privacy protections. The case law in these jurisdictions reflects a trend of the courts and regulatory authori-ties accepting an employer’s assertion of control over information that passes through work computers.145

IV. Enforcement Mechanisms

A. Temporary Restraining Orders and Other Injunctive Relief (Country Chapter Topic IV.D.)

While the law varies widely from state to state, the process for obtaining injunctive relief is substantially similar throughout the United States. The enforcement mechanism for restrictive cov-enants generally begins with preliminary injunctive relief. Often, in an effort to prevent its former employee from disclosing confi-dential information or from working for a competitor, an employer seeks a temporary restraining order (“TRO”) from a federal or state court ex parte for immediate relief, followed by a request

142 See the chapter on Chile.143 See the chapter on Brazil.144 See the chapter on Mexico. If the employer breaches the monitoring rules, the

employee can pursue a criminal claim against the employer.145 See the chapters on the United Kingdom, New Zealand, Australia and Hong

Kong. See also Hays Specialist Recruitment (Holdings) Ltd. v. Ions, [2008] EWHC 745 (Ch) (Eng.).

Overview of the Treatise 1-33IV.A.

for preliminary and then permanent injunctive relief.146 Like the United States, most jurisdictions’ enforcement mechanisms for re-strictive covenants begin with the employer seeking injunctive re-lief against the employee for breach. However, obtaining a TRO or a preliminary injunction against an employee may be impossible in some jurisdictions because the country’s law does not allow for those remedies.147 It may also be that injunctive relief is available but that a jurisdiction’s civil procedure mitigates its effectiveness, e.g., having only one process (a TRO or an injunction), limiting the remedy to a specialized court,148 or moving the proceedings so quickly in the judicial system that the injunctive relief is rendered moot.

Some jurisdictions (such as Spain) that do not provide for injunctive relief, rely instead on liquidated damage provisions.149 But, as in the United States, liquidated damage provisions usually must have some relationship to the employer’s actual damages in order to be enforceable. In New Zealand, as in the United States, if the estimate of liquidated damages is found unreasonable, such damages will be deemed a non-enforceable penalty. In China, the courts will adjust the amount of liquidated damages in relation to actual damages.150 Likewise in Italy, liquidated damage provisions are generally capped to avoid their operating as a penalty.151 In Italy, a plaintiff must choose early on between injunctive relief or money damages because a party cannot pursue both. In Japan and Luxembourg, liquidated damages are not allowed and in France, they are available only when the employer has suffered a loss due

146 See the chapter on the United States. To obtain an order for injunctive relief to enforce a confidentiality or trade secret provision, for example, an employer must dem-onstrate that it would suffer “irreparable harm” without the injunction (i.e., because money damages are inadequate), and either (1) that it will likely succeed on the merits, or (2) that there are serious questions on the merits and the “balance of hardships” tips “decidedly” towards the employer.

147 For example, Spain does not allow for preliminary injunctions. See the chapter on Spain.

148 See the chapters on Brazil, Spain, France, China, Germany and New Zealand. These countries have specialized labor or employment courts that have jurisdiction over the enforcement of restrictive covenants. See the chapters on Japan, Lebanon, Hong Kong and Singapore, where general courts of law will enforce restrictive covenants.

149 See the chapter on Spain.150 See the chapters on China, New Zealand and the United States.151 See the chapter on Italy.

Restrictive Covenants: Int’l Survey1-34 IV.A.

to the employee’s gross misconduct.152 In Germany, liquidated damages for the breach of a contract are payable even if there has been no loss. However, if the employer is claiming loss, any dam-ages due to losses are offset from the liquidated amount.153 As in the United States, the amount cannot be unreasonably high or it could be found null and void. In Germany, it should not exceed three times the employee’s monthly salary but could be higher for officers and directors.154

While referral to private mediation is rare in employment matters outside the United States, New Zealand’s Employment Relations Act provides for mediation rather than an injunction in cases involving breach of a restrictive covenant.155 Generally, labor courts in civil law countries will not hear injunctions in these mat-ters but will send them to commercial or civil courts, particularly if they involve the employee’s new employer as a claimant or defendant.

Many countries follow an irreparable harm standard, as used in the United States. For example, employers in India, Australia, Brazil, China, Japan, and Germany are required to make a show-ing that irreparable harm will result if the employee is not en-joined from the alleged breach.156 In contrast, a plaintiff in France, Denmark, and New Zealand need not make such a showing and only needs to show that there is no other remedy.157 Some of these countries are also similar to the United States in their consideration of whether a remedy of money damages would be adequate.158

A number of countries also require that the employer seeking an injunction make a showing as to the probability of prevailing on the merits, although the burden on the employer varies. China and Australia require a showing of a substantial likelihood of suc-cess on the merits, whereas other common law countries (such

152 See the chapters on Japan, Luxembourg, and France.153 See the chapter on Germany.154 See the chapter on Germany (citing §340(2) sentence 1 German Civil Code and

Münchener Kommentar zum Bürgerlichen Gesetzbuch, §339 margin no. 10 (Peter Bydlinski et. al., eds., 2001).

155 See the chapter on New Zealand.156 See the chapters on India, Australia, Brazil, China, Japan, and Germany.157 See the chapters on France, Denmark, and New Zealand.158 See the chapters on India, Hong Kong, New Zealand, Germany, and the United

Kingdom (citing Am. Cyanamid Co Ltd. v. Ethicon Ltd. [1975] AC 396.

Overview of the Treatise 1-35IV.B.

as Hong Kong, Singapore, and the United Kingdom)159 require a less stringent showing, i.e., that there is a serious question to be tried.160 An employer in India seeking an injunction must show: (a) irreparable harm, (b) the existence of a serious question to be tried, and (c) that the comparative mischief will be greater if the injunction is not entered; however, the courts have discretion in analyzing these and other factors.161 These common law countries also allow employers to seek an injunction ex parte when secrecy is required (as is the case in the United States).162 However, in the United Kingdom, Ireland, and Singapore, the party seeking the ex parte injunction is required to disclose material issues of fact and law against its interest.163 In Brazil, the plaintiff must demonstrate that irreparable harm will occur with the passage of time and that the request is legally plausible; if the defendant breaches a TRO or an injunction, he or she is subject to a fine by a judge.164 In contrast, in many countries such as Hong Kong, Lebanon, and the United Kingdom, willfully disobeying an injunction can result in imprisonment.165

Interestingly, some countries’ courts never entertain a request for an injunction. For example, in Indonesia, most employment is-sues are handled by the Office on Manpower Institution, and there are no judicial rules for an injunction or a TRO.166

B. Venue and Jurisdiction(Country Chapter Topics IV.A.3., 1.)

As the various country chapters make clear, choosing where to file an enforcement action early on is a critical decision.Typically there is no single answer, especially in cross-border

159 See the chapter on the United Kingdom (citing American Cyanamid Co Ltd. v. Ethicon Ltd. [1975] AC 396).

160 See the chapters on China, Australia, Hong Kong, Singapore, and the United Kingdom.

161 See the chapter on India.162 See the chapters on the United States, Canada, Ireland, New Zealand, and

Singapore.163 See the chapters on the United Kingdom, Ireland, and Singapore.164 See the chapter on Brazil.165 See the chapters on Hong Kong, Lebanon, and the United Kingdom.166 See the chapter on Indonesia.

Restrictive Covenants: Int’l Survey1-36 IV.B.

cases.167 Complex issues of venue and jurisdiction codified by stat-ute of the specific countries (or region) at issue must be evaluated. Some countries restrict an employer’s choice of forum and shield employees from the burden of having to defend against an enforce-ment action in a far-away forum by allowing or mandating that an employee be sued where he or she resides.

Regardless of a contrary contractual provision, an employee domiciled (at the time the action commences) in an EU country can be sued only in the courts of that country even if his or her domicile is not in the same EU country where the employee per-formed the work (usually, the employer’s location).168 In regard to noncross-border disputes in most EU countries, such as Spain and Germany, the employee can be sued where he or she is domiciled or where his or her employment services were performed.169

In France, jurisdictional issues are more complicated and de-pend on whether a claim is filed in an Employment Tribunal or the district courts. For Employment Tribunal jurisdiction, if the work was carried out in a specific place of business, the Employ-ment Tribunal in that location will have jurisdiction. If there is no specific location, the dispute is filed within the jurisdiction of the employee’s place of residence. However, the employee always has the opportunity of removing the matter to the Employment Tribu-nal located where the employment contract was signed or where the employer is established. If the claim is filed in a District Court, the court where the defendant’s place of residence or business is located has jurisdiction. If there is more than one defendant, the plaintiff can choose the jurisdiction among the defendants’ places of residence or business.170

In China, labor disputes are decided by a Labor Arbitration Commission, which has original jurisdiction over all controver-sies arising out of an employment contract that is performed in

167 See, e.g., Thomas Weisel Ptnrs. LLC v. BNP Paribas 2008 U.S. Dist. LEXIS 65936 (N.D. Cal., Aug. 26, 2008).

168 See the chapter titled “The Challenge of Cross-Border Litigation From an EU Perspective in this Part. See also Appendix A for a discussion of EU requirements, including Council Regulation (EC) No. 44/2001 of December 22, 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

169 See the chapters on Spain and Germany in Volume I.170 See the chapter on France in Volume I.

Overview of the Treatise 1-37IV.B.

its province, municipality or country or where the employer re-sides. If a case is originally filed in both venues, the one where the contract was performed will have jurisdiction over the matter. In regard to restrictive covenant related cases, labor arbitration com-missions have no jurisdiction over the employee’s new employer, therefore, the employer is limited to filing a claim against the em-ployee only. Finally, the labor arbitration commission’s jurisdic-tion only extends to parties having residence in China. However, a former employer can bring an action in a court for infringement of trade secrets against a new employer, if the new employer owns some property in China or has a subsidiary or a branch in China.171 In Japan, a legal action is usually initiated at the place of the de-fendant’s address. In a case involving a cross-border employment-related dispute, under Japanese civil procedure law and practice, an employer has to file a lawsuit against a former employee where the employee resides.172

In Vietnam, if the defendant is an individual, the suit should be filed in the district level of the people’s court where the in-dividual resides or works. Conversely, if the defendant is an or-ganization, the suit should be filed in the labor court where the organization is headquartered.173 In Thailand, depending on cir-cumstances, lawsuits must be filed where one of the parties is do-miciled, where the cause of action arose, or where the assets are located.174 In India, venue is proper where the property is situated, where the defendant resides, or where the cause of action took place. 175

In Brazil, actions involving restrictive covenants are brought before labor courts and must be filed in Brazil as long as employ-ees have rendered services in the country; the claim should be filed where the employee rendered services.176 In Russia, a claim is usually filed in a defendant’s place of business (if the plain-tiff is the employee) or place of residence (if the employee is the

171 See the chapter on China in Volume II.172 See the chapter on Japan in Volume II.173 See the chapter on Vietnam in Volume II.174 See the chapter on Thailand in Volume II.175 See the chapter on India in Volume II.176 See the chapter on Brazil in Volume II.

Restrictive Covenants: Int’l Survey1-38 IV.B.

defendant).177 The territorial jurisdiction of the district level courts is determined on the basis of the registered address of the defen-dant. In United Arab Emirates, any dispute between an employee and employer is referred to the Ministry of Labor of the Emirate in which the employer is located.178

C. Alternatives to Court: Arbitration/Mediation (Country Chapter Topic IV.A.2.)

Outside the United States, employment arbitration may occur voluntarily but mandatory arbitration is rare.179 In most foreign countries, employees are not at-will and rely on governmental bodies and labor tribunals to protect their statutory and contrac-tual rights rather than on individual private enforcement of ac-tions. In Germany, France, and Spain, an employee is not allowed to waive the right to seek a ruling from one of the specialized labor courts.180 Similarly, in Brazil, Labor Courts deal with en-forcements of restrictive covenants and arbitration is not allowed for matters relating to labor and employment.181

In the EU, arbitral agreements must also be consistent with the European Convention for the protection of Human Rights and Fundamental Freedoms. Article VI of the Convention stipulates that “in the determination of his civil rights and obligations every-one is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.”182 In the United Kingdom, while it is unusual for employment contracts to contain an arbitration clause, litigation can be stayed by a party to an arbitration agreement. In India, where there is a valid arbi-tration agreement between the parties, a court will likely refer the parties to arbitration.183

177 See the chapter on Russian Federation I Volume I.178 See the chapter on the United Arab Emirates in Volume II.179 See the chapter on the United States. 180 See the chapters on France, Spain and Germany. See also Matthew W. Finkin,

Privatization of Wrongful Dismissal Protection in Comparative Perspective, 37 Indus. L.J. 149, 156–60 (2008).

181 See the chapter on Brazil.182 The European Convention for the Protection of Human Rights and Fundamental

Freedoms, Nov. 4, 1950, art. VI, 213 U.N.T.S. 221.183 See the chapter on India.

Overview of the Treatise 1-39IV.D.

Some countries provide public alternatives to court action. Mandatory labor arbitration must precede any lawsuit by an em-ployee in China. Also, Singapore has a two-track, foreign and domestic legal framework for arbitrations. As mentioned in A. above, in New Zealand, under the Employment Relations Act the court is generally obliged to send the parties to mediation before they can pursue any other resolution.184 In Indonesia, the Office of the Manpower Institution handles disputes and has instituted a dis-pute resolution mechanism, which provides the parties mediation, conciliation, and arbitration processes. Notably, most employment disputes in Indonesia are settled through these processes.185

D. Other Damages (Country Chapter Topic IV.H.)

Unlike the United States, in many countries monetary dam-ages are an unusual remedy in restrictive covenant matters. For example, damages are only available in Brazil when specific per-formance of the covenant is impossible or not advisable in the opinion of the judge deciding the case.186 In Germany, damages are only available upon a demonstration of a loss resulting from competition by the employee’s new employer, and in France, they are only available if there has been gross misconduct.187 Interest-ingly, in Spain, courts rarely award damages; instead, they award the employer the amount of consideration that it had paid to the employee.188

Some countries provide for the recovery of both ascertainable and unascertainable damages.189 In the United Kingdom, the latter are termed “Wrotham Park” damages and are calculated based on the hypothetical price the employee would have been willing to pay, and the employer would have been willing to receive (prior to the time of actual breach) to void the restriction.190

184 See the chapter on New Zealand.185 See the chapter on Indonesia.186 See the chapter on Brazil.187 See the chapters on France and Germany.188 See the chapter on Spain. 189 See the chapters on the United Kingdom, New Zealand, and Germany.190 See the chapter on the United Kingdom (citing Wrotham Park Estate Co. v.

Parkside Homes Ltd. [1974] 1 WLR 798).

Restrictive Covenants: Int’l Survey1-40 IV.D.

In most common law countries (including the United States, Singapore, and the United Kingdom), a plaintiff can seek restitu-tion or an accounting of profits, which is essentially disgorgement of the employee’s profits as a result of the breach.191 A plaintiff in Singapore must elect either damages or an accounting of profits. In Germany and the United Kingdom, damages based on resti-tution may also be available in an action against the breaching employee’s new employer for the business generated by the em-ployee’s breach.192

Declaratory relief in order to preempt an enforcement action is available in many countries, but as in the United States, the cost can be prohibitive. Declaratory relief is uncommon in Japan and New Zealand.193 In France, a departing employee can request to have a restrictive covenant in his or her employment contract ruled null and void.194 In Germany, a party may only seek a declaratory judgment if termination is likely or has already taken place, and in Spain declaratory relief is only available if the employee has suf-fered actual damages.195

Additionally, after an employer has initiated an enforcement action, employees may bring counterclaims for wrongful dismissal or the recovery of unpaid compensation.196 In New Zealand, if the employee can prevail on a counterclaim that he or she was unjus-tifiably dismissed,197 this may amount to repudiation by the em-ployer of the employment agreement, in which case the employee may no longer be bound by the restrictive covenant.198

191 See the chapters on the United States, Singapore (citing Dart Indus. plc v. Décor Corp Pty Ltd. (1993) 179 CLR 101, 114), and the United Kingdom (citing Attorney-General v. Blake [2001] 1 AC 268, 280 (H.L.)).

192 See the chapters on the United Kingdom and Germany (citing, in the latter, §61 (1) of the German Commercial Code; RGZ 103, 99; BGHZ 63, 260).

193 See the chapters on Japan and New Zealand.194 See the chapter on France.195 See the chapters on Germany and Spain.196 See the chapters on Brazil, France, Hong Kong, Japan, New Zealand, the United

Kingdom, Spain, and Singapore, where employees can bring counterclaims. 197 See the chapter on New Zealand (stating that unjustified dismissal is a type of

personal grievance under the Employment Relations Act 2000 §103).198 See the chapter on New Zealand (stating that the principles set forth in General

Billposting–that an unjustified dismissal of an employee is sufficient to permit that employee to cancel the employment agreement– is accepted as law in New Zealand.)

Overview of the Treatise 1-41IV.E.

E. Conflict/Choice of Laws (Country ChapterTopics IV.A.5., 4.)

The treatise contains an excellent chapter on cross-border disputes in the EU, which describes in more detail the most recent cases involving efforts to enforce restrictive covenants.199 Gener-ally, in the EU, parties to an employment contract are free to choose the governing law, but this choice cannot deprive the employee of the protection afforded to him or her by the law that would apply if the contract had not designated a choice of law provision.200 In the absence of a contractual choice of law, the default typically is the law of the country in which the employee habitually carries out his or her work in performance of his or her contract, or, if there is no such place, the law of the country in which the employee was hired. In appropriate circumstances, it may be the jurisdiction where the employer’s loss occurs.

In Hong Kong and Singapore, absent an express or inferred choice of law, the law of the place with the closest and most real connection to the contract will be applied.201 In Hong Kong, the parties’ choice of law will not be respected if it is not the law of a “civilised and organised society” or if there is a strong public policy against giving effect to such governing law.202 In Japan, the rules are similar: if the employee demands that the law having the closest contact with the employment relationship be applied (gen-erally where the services of the employee took place), then that law applies in addition to the law stipulated in the agreement.203 In India, the intention of the parties determines the proper law of the contract unless it is against public policy. However, for a court to

199 See the chapter in this treatise titled The Challenge of Cross-Border Litigation from an EU Perspective.

200 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), OJ L 177, 4.7.2008, Section 8; Article 6(1) of the Rome Convention (1980/934/EEC).

201 See the chapter on Hong Kong. See also Overseas Union Ins. Ltd v. Turegum Ins. Co [2001] 3 SLR 330; Las Vegas Hilton Corp v. Khoo Teng Hock Sunny [1997] 1 SLR 341.

202 Carl Zeiss Stiftung v. Rayner & Keeler [1967] 2 All ER 536(HL).203 See the chapter on Japan (describing The Law Concerning Application of Laws

(LCAL), art. 12, ¶ 1).

Restrictive Covenants: Int’l Survey1-42 IV.E.

take judicial notice of foreign law it must be proved like any other fact.204

In Brazil, labor courts in the location where the employee works oversee the cases involving enforcement of restrictive cove-nants. Article 8 of the Brazilian Labor Code allows supplementary application of foreign law when Brazilian legislation does not have specific provisions on the subject, as long as public policies and labor laws are considered. Because the Brazilian Labor Code has no definite stipulations regarding restrictive covenants, relevant legislation from Italy, Portugal, and Spain has been considered in cases dealing with enforcement of restrictive covenants.205

F. Enforcement of Foreign Judgments (Country Chapter Topic IV.K.)

For courts outside the United States to give effect to a for-eign judgment, different factors are taken into account, including the country of the court which gave the judgment, the proceed-ings, and the time of such judgment. There are, of course, many bilateral and multilateral treaties that give effect to cross-border enforcement as well as regional directives such as the Hague Con-vention on Foreign Judgments in Civil and Commercial Matters,206 the Lugano Convention,207 and the EU Directive EC 44/2001 (the “Brussels I Regulation”),208 to name a few.209

For example, the Brussels I Regulations govern the en-forcement of judgments in the EU. In all EU countries, there are straightforward procedures whereby a judgment obtained in the

204 See the chapter on India. 205 See the chapter on Brazil (Choice of Law).206 Convention of 1 February 1971 on the Recognition and Enforcement of Foreign

Judgments in Civil and Commercial Matters (20-VIII-1979). See Appendix B.207 Convention of 16 September 1988 on jurisdiction and the enforcement of judg-

ments in civil and commercial matters. See Appendix A.208 See EU Regulation 44/2001 on Jurisdiction and the Enforcement of Judgments

in Civil and Commercial Matters, Mar. 1, 2002, 2001 O.J. (L 12) 1, amended by 2002 O.J. (L 225) 1 [hereinafter EU Reg. 44/2001] (binding on all EU member states with the exception of Denmark, where the Brussels Convention is still effective). See also Appendix A.

209 See the chapter in this treatise titled The Challenge of Cross-Border Litigation from an EU Perspective.

Overview of the Treatise 1-43IV.F.

EU country will be recognized and enforced. The courts will not usually reassess the merits of the case when enforcing these judg-ments. However, it is possible that a judgment will not be enforced if it is contrary to the law of the particular EU country or is con-trary to a strong precedent in the country’s case law. For example, in Germany, foreign judgments must be acknowledged and can be enforced domestically; however, the German courts must first examine whether the legal criteria for acknowledgement are satis-fied. Enforcement of the judgment cannot create an outcome that is incompatible with the material principles of German law.210

In Canada, the court enforcing a judgment from another province must analyze whether there is a real and substantial con-nection between the jurisdiction that rendered the judgment and the subject matter or parties to the action. If no connection exists, the defendant can raise one of three defenses as a bar to enforce-ment: fraud, public policy, and/or a denial of natural justice. In enforcing monetary judgments by courts in other countries, the court must consider whether there is a real and substantial con-nection between the cause of action and the foreign court and, if so, whether there is a defense available to the defendant that would bar the enforcement of the foreign judgment. However, with re-spect to enforcement of nonmonetary judgments, the courts must carefully review the relief ordered by the foreign court using a non-exhaustive list of questions that consider every aspect of the nonequitable relief and the parties affected by it.211

In India, enforcement of foreign judgments is governed by statute; such judgments are enforced unless certain factors are present, such as fraud, an incorrect view of international law, or refusal to recognize the law of India if applicable.212 India is also a party to reciprocal agreements and has procedures for execution

210 See the chapter on Germany.211 See the chapter on Canada. The following questions are asked by the courts

when enforcing a non-monetary foreign judgment: Are the terms of the order clear and specific enough to ensure that the defendant will know what is expected from him or her? Is the order limited in its scope and did the originating court retain the power to issue further orders? Is enforcement the least burdensome remedy for the Canadian justice system? Is the Canadian litigant exposed to unforeseen obligations? Are any third parties affected by the order? Will the use of judicial resources be consistent with what would be allowed for domestic litigants?

212 See the chapter on India.

Restrictive Covenants: Int’l Survey1-44 IV.F.

of decrees in those territories.213 In Mexico, foreign judgments will be recognized, however, final decisions or provisional remedies authorized by a foreign legal system must be recognized by the Mexican Courts before they are enforced, and there are detailed procedures to be followed to obtain such recognition.214 In con-trast, foreign judgments cannot be executed in Indonesia, but can be submitted as nonconclusive evidence in a case.215 Foreign judg-ments may be executed and implemented within the United Arab Emirates (UAE) under the same conditions provided for in the law of the jurisdiction of the foreign state under certain conditions and procedures, including that the judgment does not conflict with a previous UAE court judgment and does not violate public policy.216

In order to be enforced in Japan, a foreign judgment must satisfy the following requirements: the jurisdiction of the foreign court must be recognized under the laws or regulations of Japan or conventions or treaties to which Japan is a signatory; and the losing defendant must have been served with a summons or order necessary for the commencement of the suit (excluding service by publication or any other service similar thereto) or must have appeared without receiving such service. Finally, to be enforced, the content of the judgment and the court proceedings may not be found contrary to public policy in Japan, and there must be reci-procity between Japan and the other country involved.217

V. Drafting Advice

When drafting restrictive covenants—particularly confiden-tiality and trade secret restrictions where global enforcement is important—understanding the considerations relevant for a U.S. or foreign court in enforcing these provisions is critical. The scope of any restrictions, as with any contract, will depend on the inter-

213 Id. 214 See the chapter on Mexico.215 See the chapter on Indonesia. However, in Indonesia, arbitration awards can be

directly enforced. 216 See the chapter on the United Arab Emirates.217 See the chapter on Japan.

Overview of the Treatise 1-45V.

est of the parties. Counsel for employers will want broad protec-tions. Employee counsel (if there is an opportunity for negotiation) typically want more freedom of movement and flexibility for their clients. Some general observations are appropriate for both:

• A practitioner should avoid drafting restrictions that are overly broad.

• Information should be targeted for protection only if the employer can show that without protection, legitimate busi-ness interests will be compromised.

• Restricting use of “know-how,” acquired skill, and knowl-edge learned on the job can render an entire confidentiality restriction unenforceable. Drafting to limit restrictions to only what is necessary to protect the information or trade secret at issue without encroaching on the employee’s mind may both give the employer greater protection and give the employee greater flexibility in obtaining new employment.

• In most foreign jurisdictions, noncompetition provisions should be reserved for key employees who have access to highly confidential information or trade secrets.

• Drafting clear and unambiguous noncompetition provi-sions that also contain set-offs for garden leave periods may ultimately both prevent a noncompetition provision from being found prima facie void or illegal and limit the burden on the employee.

• If an employer has any intention of lengthening the gar-den leave period either when the employee is terminated or after garden leave has begun, the right to do so must be expressly written into the employment agreement at the beginning of the relationship.

• The geographic and temporal scope of the restriction should be limited to what is absolutely necessary to protect the employer from unfair competition (as opposed to com-petition in a general sense).

• The period of time for the restrictive covenant to be en-forced should be reasonable where you are seeking en-forcement. Anything over a year is likely questionable even with consideration, unless the employee in question is a key or other highly specialized employee. In the case of trade

Restrictive Covenants: Int’l Survey1-46 V.

secrets, the protections can be broader than for restrictive covenants.

• No-hire provisions in nonsolicitation clauses will likely be considered noncompetition provisions in jurisdictions that void noncompetition agreements. Again, employers should craft nonsolicitation provisions narrowly to avoid the entire provision being found illegal and non-enforceable.

• Be aware of local laws in regard to privacy rights and draft confidentiality provisions that don’t conflict with the data protection or monitoring laws in a particular jurisdiction or violate the employee’s privacy.

• To ensure that an employee understands his or her duty of loyalty, specifically include “exclusivity of service” provi-sions to ensure that during employment the employee is not allowed to compete with the employer or start his or her own business. Also consider compensation for this covenant if the jurisdiction in question does not have statutory or com-mon law post-employment duty of loyalty obligations.

As discussed above, most countries will enforce provisions that are expressly written into an agreement and (in many cases) the position of the employee is one where he or she is privy to highly confidential information and trade secrets. In order to bind these employees not to compete, the employer will usually need to commit a percentage of total compensation as consideration for this restriction. In addition, the restrictions must be written in a way that allows the employee to continue to perform productive work using the same or similar skill set that he or she possesses.

Practitioners must consider the local law in a particular juris-diction where the employee will be working or residing. In fact, depending on whether the practitioner is representing employees or employers, it may be prudent to use a different choice of law or jurisdictional provision for post-employment restrictions from that which is being applied to the rest of the employee’s agreement. For example, where an attorney is representing an employee in Mexico and the employer insists on a noncompetition provision, employee’s counsel may insist that the choice of law be Mexico even if the jurisdiction is in the United States. On the other hand, where an attorney is representing the employer, that attorney

Overview of the Treatise 1-47VI.

would insist on both U.S. law and jurisdiction. Another option in this situation would be to draft an employee suspension agree-ment, which as discussed in II.F. above is similar to garden leave; if carefully crafted and limited in time, this provision may have a better chance of enforcement than a noncompete (even in Mexico, which finds noncompete provisions void).

In particular jurisdictions, courts may invalidate entire agree-ments where modifications or “blue pencilling” by the court or authority are not permitted or customary. Accordingly, employ-ers should be cognizant of these jurisdictions’ rules when drafting noncompetition provisions, or risk a court finding the entire agree-ment unenforceable.

Finally, practitioners must pay careful attention to the juris-diction’s laws on liquidated damages so that the agreements they draft are enforceable. These considerations include: whether these provisions are prima facie illegal or void ab initio in the local ju-risdiction; whether they may be the only remedy for breach; and ensuring that they do not contain penalties over and beyond the capped amounts tolerated by the local courts. Practitioners should also be mindful that in some jurisdictions where injunctive rem-edies exist, an employer cannot obtain both injunctive relief and damages—and an unenforceable clause in a jurisdiction that does not “blue pencil” (or modify a clause where needed) may cause a court to strike the damage provisions completely.

VI. Conclusion

This treatise illustrates the wide divergence of the law in various regions of the world, even between neighboring countries, analogous to the differences in law between neighboring states throughout the United States. As companies become increasingly global, and information and technology cross all borders, it is es-sential for counsel for employers in particular, but also counsel for employees, to understand these differences. Clearly, the protection of truly confidential information becomes vital in maintaining a competitive advantage over other businesses with which a company competes. This has motivated companies to increasingly include in their employment agreements post-employment restrictions that

Restrictive Covenants: Int’l Survey1-48 VI.

attempt to prevent employees from going to a competitor and from taking or misusing confidential information.

However, ensuring that U.S. or foreign courts will enforce these prohibitions is a complex analysis. As observed in this trea-tise, various countries define this information differently, and the public policies of one jurisdiction may not, in fact, mirror that of another: what appears to be a protectable interest may be a cul-tural, commercial or political distinction reflected in the law of a particular place. Also, what constitutes unfair competition or ad-vantage may vary depending on how competition is viewed and understood. The right to employee privacy and the value placed on personal autonomy and personal choice may also factor in to how these restrictions are treated in different jurisdictions.

What is clear is that case law in this area is evolving, and multinational employers can no longer rely on a single country’s law to determine the enforceability of its interest. Rather, they must look to how law is interpreted by the relevant, appropriate courts and how the jurisdiction where the employee is working or residing might utilize and analyze its own laws to decide the enforceability of these provisions.