Restricting Employees for Leaving to Competitors

This topic contains 3 replies, has 4 voices, and was last updated by  Mohamad Alchalabi 1 month ago.

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  • #121798

    FAHAD ALQAHTANI
    Participant

    During merger transactions and other type of transactions, some companies restrict their employees from working for other competitors for a certain period of time (usually two years). IS this a global practice or only some companies uses this approach to ensure competitive advantage and risk minimization for longer period by ensuring key employees are not employed by competitors?

    #121824


    Participant

    I think the enforceability of non-compete clauses in employment contracts depends on the degree of restriction and the specific legal jurisdiction. In Singapore, the burden of proof lies with the employer in demonstrating 1). protection required for the employer’s legitimate interests, and 2). restrictions are reasonable in the interests of parties and to the public interest.

    Such clauses which restrict competition, or deprive the employee of a job/income would generally be unreasonable and thus unenforceable.

    #121852

    Elizabeth Perlak
    Participant

    In the United States as well the enforceability of such agreements is dependent generally on state law requirements. The relevant areas are what type of geographic restriction and the scope of the restriction (the more closely tailored, the more enforceable). Some states however, California and Massachusetts in particular but the list is growing, restrict the use of non-compete agreements almost completely. There is a strong concern about prohibiting individuals from earning an income.
    If you are concerned about top talent leaving, rather than restricting them for leaving it may be more effective to incentivize them to stay. Retention bonuses, key assignments as part of the integration team, career development may all help you reach the same goal.

    #121869

    Mohamad Alchalabi
    Participant

    Non-compete clauses are normal in many companies, especially in tech. They are usually in the original contract of the employees though, and those cannot be, normally, amended just because they company is being acquired. Nonetheless, if the new companies is worried these employees could end up with the competition, it can incentivize them to stay or possibly offer them packages in return for not joining the competition for some years.

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