Are Worldwide Non-Compete Agreements Enforceable?

Worldwide or global non-compete agreements with key employees can be enforceable where they are related to legitimate business interests, employees’ duties include a substantial exposure to global operations, and the restraints are narrow in scope.  Whether those factors are present depends on the company’s business, the employee’s duties and tenure at the company, and the language of a particular non-compete agreement.

For example, a Texas federal court recently found that a global covenant not to compete, which extended to every country where the employer did business, was enforceable because the customer base for the employer’s product was very narrow and the high-level employee had access to confidential information about customers outside his assigned territory.

The following factors influenced the court in finding the global non-compete restraints reasonable:

  • the employee was a high-level sales manager with direct sales responsibilities for large portions of the United States and Canada, for all of Europe, and all of Russia; 
  • the employee had access to the company’s confidential information regarding its clients and sales worldwide; and
  • the customer base for the company’s products was very narrow with limited numbers of major licensors;
  • the company had very few competitors who produced and sold competing products on a global scale;

Another federal court in Texas held that a non-compete provision that extended to every state or country where the company did business was enforceable against an employee because he had such an extensive knowledge about the company and its products that he could take business away from the company in any country.

Specifically, the employee in that case:

  • was a senior solutions engineer with “intimate knowledge” of all of the company’s products;
  • knew technical details about the company’s products’ functionalities, development plans, sales pipeline, sales process, customers’ preferences, and relationships with customers;
  • knew the company’s unreleased software and its roadmap for future product development;
  • knew product functionalities requested by company’s customers; and
  • knew the company’s business development plans, market research, and its marketing strategy.

Another Texas federal court enforced a global non-compete agreement that included 300 company locations in 75 countries where the non-compete restraints did not prevent the employee from working in a particular industry and the employee had an upper management position at the company and was responsible for major international clients and had intimate knowledge of sensitive company information.

Bottom Line.  A company operating globally can protect itself against key employees going to work for a global competitor, but should make sure that its non-compete agreements are not overbroad.  Narrowly tailoring the scope of the agreement to certain prohibited activities, products or job functions may help to enforce global non-compete restraints when the time comes to do so. Also, keeping track of what information the key employee is exposed to internally as part of his or her duties can help in a legal enforcement action as it can explain why the company needs a global non-compete agreement.

As the non-compete requirements vary from state to state, and enforcement of non-compete agreements often turns on the facts of a particular employer-employee relationship, companies are advised to seek legal advice regarding their non-compete enforcement strategy in light of their unique situation.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com  or (214) 722-7108.

 

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