Tag archives: restrictive covenants

The Financial compensation for a non-compete provision can be invalid if too high says the French Supreme Court!

By Laure Joncour on December 7, 2020 Posted in Contracts, Europe, France, General

In France, the rules governing post-termination, non-compete and/or non-solicitation clauses in employment contracts have been established through case law. Restrictive covenants in an employment contract are only considered enforceable by French courts if they meet the following criteria (which are cumulative) :

– They do not extend beyond what is reasonably necessary to protect the legitimate interest of the employer;

– they are limited in terms of activity, geographical area and duration and the extent of the restrictions should be adapted appropriately to reflect the specific employee’s status and duties;

– they comply with any applicable sector-wide collective bargaining agreement; … Continue Reading

In its first decision on restrictive covenants in more than a century, the UK Supreme Court upholds a 6-month non-compete covenant adopting the more liberal approach to the rules of severance

By Claire Darbourne (UK) on July 17, 2019 Posted in Contracts, Europe, UK

In the case of Tillman v Egon Zehnder Ltd [2019] UKSC 32, the Supreme Court has upheld a 6-month non-compete covenant, adopting the more liberal approach to the rules of severance.

The Court ruled that on its proper construction, the covenant was unreasonably wide in that it restrained the employee from holding a minority shareholding in a competing business but held that the offending part of the covenant could be severed so as to make it enforceable.

Legal background

In the UK restrictive covenants are prima facie void as being in restraint of trade unless they go no further than … Continue Reading

Restrictive covenants in UK contracts of employment

By Amanda Sanders (UK) on September 29, 2017 Posted in Contracts, UK

In the UK, a post termination restrictive covenant will be void for being in restraint of trade unless the employer has a legitimate business interest to protect and the protection sought is no more than is reasonable to protect that interest. The interests which can be protected are clients, staff, and confidential information. One type of restriction often imposed in UK contracts seeks to prevent an employee from competing with the previous employer and this can even extend to holding a shareholding in another competing company. However, it is usual to exclude minor shareholdings which may simply be held by … Continue Reading

Courts Continue to Chip Away at Restrictive Covenants

By William J. Armstrong on November 21, 2016 Posted in Canada, Contracts

Powell River Industrial Sheet Metal Contracting Inc. (P.R.I.S.M.) v Kramchynski, 2016 BCSC 883, is a decision from the Supreme Court of British Columbia that dealt with the enforcement of a restrictive covenant in the context of a commercial transaction. The decision stands for the proposition that a court may refuse to enforce a restrictive covenant where an employer fails to satisfy its obligations to the employee.

The defendant entered into an agreement for the purchase of his refrigeration, air conditioning and furnace repair business. In addition to the agreement for the purchase of the business, the defendant also entered into … Continue Reading

How to Successfully Include a Restrictive Covenant in a Current Employment Contract

By Xavier Hamel on September 22, 2016 Posted in Québec

In order to best protect the employer’s commercial interests and competitiveness, it is often crucial to include restrictive covenants in employment contracts. It is of equal importance to ensure that these covenants respect the limits established in the case law for them to be enforceable by the courts. Indeed, they may be deemed null and void if they are proven to be ambiguous or too broad.

The question then becomes: what happens if an employer omits to include a restrictive covenant in an employment contract? Is it possible to insert such a provision during the employment relationship? It appears that … Continue Reading

Enforcing employee restraints of trade after termination of employment – an update

By Daniela Loy on January 29, 2016 Posted in Contracts, Europe, General, Germany

The legal framework for post-contractual non-compete covenants is unchanged since our last post on the topic in 2013. It is nevertheless worth mentioning the following interesting court decisions which deal with the enforceability of employee restraints and the employer’s obligation to pay compensation:

Pursuant to the statutory provisions in sec. 74 et. seq. German Commercial Code (HGB), a post-contractual non-compete covenant must be in writing and the compensation payable for each year of the restraint period must be at least 50 per cent of the last remuneration received by the employee.

In a recent decision the German Federal Labour Cour… Continue Reading

Enforcing employee restraints of trade in the UK

By Ben Wright on January 26, 2016 Posted in Europe, UK

Background

The relevant English law relating to post-termination of employment restrictions (PTRs) arises from case law around the doctrine of restraint of trade, rather than statute.

The basic starting point is that PTRs are void on the basis that they amount to unlawful restraints on trade. English courts will however enforce a restriction to the extent that it is no more restrictive than is reasonably necessary to protect the employer’s legitimate business interests (such as protection of trade secrets and confidential information). English courts’ assessment will be based on the circumstances that were in existence when the PTR … Continue Reading

What about non-compete compensation payments in case of the employer’s insolvency?

By Bettina Goletz and Daniela Loy on April 23, 2014 Posted in Europe, Germany

In reference to a previous post, entitled “Limits on non-compete and non-solicitation clauses under German law” by Bettina Goletz, we have been asked about non-compete compensation payments in case of the employer’s insolvency. This post will address whether the employee is entitled to compensation payments under a post-contractual non-compete clause in the situation where the employing company files for insolvency under German law.

In general, under German law a post-contractual non-compete clause is only valid if an amount of 50% of the most recent compensation has been granted to the employee. In the situation where the employing company files for … Continue Reading

The (limited) ability to restrict employees’ freedom of speech following the termination of their employment contract

By Elodie Grangier on March 7, 2014 Posted in Contracts, Europe, France

Freedom of speech is considered to constitute a fundamental right for employees both outside and within an employer’s premises. However, generally speaking, the exercise of this right is not considered to be legitimate if it leads to abuse, such as excessive, insulting or defamatory statements.

Moreover, regardless of the existence of any abuse, French employment law permits the restriction of such rights if such restrictions can be justified by the nature of the task performed by the employee and if such restrictions are proportionate to the purpose thereof.

Generally, such restrictions are created during the performance of the employment contract. … Continue Reading

Restrictive Covenants in Canadian Employment Law

By guestauthor on August 1, 2013 Posted in Canada

This post was contributed by Shelagh Burrowes, Associate, Norton Rose Fulbright Canada LLP (Calgary)

Restrictions placed on former employees by way of restrictive covenants, such as non-solicitation and non-competition agreements, may be imposed only if there is a genuine need to protect the employer’s interests and will be subject to close judicial scrutiny. Whether or not such restrictions are reasonable will be determined by the courts on a case-by-case basis having regard to the nature of the business and the employee’s duties.

The Supreme Court of Canada

The leading Supreme Court of Canada case on restrictive covenants, particularly non-competition … Continue Reading

Restrictive Covenants in China

By Grace Ye on July 28, 2013 Posted in Asia Pacific, China

Restrictive covenants imposed on employees in the People’s Republic of China (PRC) are normally in the form of non-compete and non-solicitation obligations. PRC law sets out some general principles on non-compete obligations but is silent on non-solicitation obligations which are therefore generally subject to the mutual agreement of the parties concerned.

As a general principle of PRC law, employers and employees may agree on the employees’ non-compete obligations during and after the term of the employment although the general law does impose some parameters. Under PRC law, the non-compete period must not extend beyond two years after the termination of … Continue Reading

Restrictive covenants

By Isabella Gandini on June 7, 2013 Posted in Colombia, Latin America

In Colombia as in many other Latin-American countries, non competence clauses are enforceable for the duration of the employment contract. This means that the restriction will disappear once the labor relationship is terminated.

The fact is that according to Article 26 of the Labour Code, parties in a labor relationship are allowed to agree an exclusivity duty by the employee during enforcement of the employment contract. Likewise, Article 44 of the Labour Code prohibits the employer to agree that such restriction extends beyond the term of the employment contract.

In the same manner, non solicitation clauses are construed under … Continue Reading

Restricted covenants under Venezuelan labor legislation

By Yanet Aguiar on June 7, 2013 Posted in Latin America, Venezuela

Under Article 20 of the Regulations to the abrogated Organic Labor Law (which is still in force as long as its rules do not contravene the New Labor Law), the enforcement of non-compete provisions is limited.

Such Article expressly provides that during the employment relationship, the employee shall refrain from carrying out negotiations on her/his own behalf or on behalf of others, unless she/he is expressly or tacitly authorized otherwise.

This duty may be required of an employee for up to six months as of termination of the employment relationship. For that, among other requirements, the Regulations establish that such … Continue Reading

Restrictive covenants in Quebec

By Genevieve Lay on June 6, 2013 Posted in Canada, North America, Québec

When it comes to non-compete clauses, the Civil Code of Quebec clearly sets out the required elements:

2089. The parties may stipulate in writing and in express terms that, even after the termination of the contract, the employee may neither compete with his employer nor participate in any capacity whatsoever in an enterprise which would then compete with him.

Such a stipulation shall be limited, however, as to time, place and type of employment, to whatever is necessary for the protection of the legitimate interests of the employer.

The burden of proof that the stipulation is valid is on the

Are your restraint of trade provisions enforceable in France?

By Elodie Grangier on June 6, 2013 Posted in France

In France the rules governing restraint of trade provisions in the context of an employment relationship have been established through case law. Generally speaking, restrictive covenants in an employment contract will only be considered enforceable by French courts if:

it can be shown that the inclusion of the restriction protects a legitimate business interest; and
the covenant is included only to the extent necessary to protect such legitimate interest.

A “legitimate business interest” may include the protection of trade secrets and confidential information, the protection of relationships with customers, prospective customers and suppliers, and the protection of the stability of … Continue Reading

Limits on non compete and non solicitation clauses under German law

By Bettina Goletz on June 6, 2013 Posted in Europe, Germany

During the course of their employment relationship, employees are prohibited from competing with their employer and from soliciting other employees and/or customers; this applies even if there is no express provision in the employment agreement.

With regard to a post contractual non-compete covenant agreed before the employment’s termination there are several restrictions which have to be considered:

The post contractual non-compete covenant must be agreed in writing. Two copies must be originally signed by both parties on the same document (email, scan, facsimile etc. are not sufficient), and one copy of the original signed documents must be handed

Enforcing employee restraints of trade in the UK

By Claire Darbourne (UK) on June 5, 2013 Posted in Contracts, Europe, UK

In the UK the rules governing the common law doctrine of the restraint of trade have been established through case law. A restrictive covenant in an employment contract will only be enforceable by the English courts if:

(a) it can be shown that the inclusion of the restriction protects a legitimate business interest; and

(b) the restriction extends no further than is reasonably necessary to protect that business interest.

A “legitimate business interest” may include the protection of trade secrets and confidential information, the protection of connections with customers, prospective customers and suppliers, and the protection of the stability of … Continue Reading

Restrictive covenants in Hong Kong

By guestauthor on June 3, 2013 Posted in Hong Kong

This post was contributed by Marie Kwok, Of Counsel, and Rebecca Hui, Associate, at Norton Rose Hong Kong

Under Hong Kong law, restrictive covenants (e.g. non-compete and non-solicitation clauses) are prima facie unenforceable as they are restraints of trade and against public policy. However, the Courts have upheld certain restrictive covenants provided that the following requirements are satisfied:

(1) the covenants serve to protect the employer’s legitimate business interests (such as trade secrets, confidential information of equivalent status and trade connections) whilst being no wider than reasonably necessary to do so;

(2) the covenants are sufficiently clear and … Continue Reading