International companies doing business in the United States can encounter a litany of legal and regulatory challenges as they navigate a system of rules that can be quite different from those governing company operations at headquarters overseas. One of the keys to establishing and maintaining successful U.S.-based operations is the strong drafting of agreements that govern the company-employee relationship. There are several different types of agreements that can be utilized to protect the business interests of international companies.
The employment agreement is the foundational document that governs the relations between employer and employee. These agreements will contain the key terms of the employment arrangement, such as job title, duties, duration, compensation, and the like. When a dispute arises between the parties, the employment agreement will guide the outcome. It is critically important, however, to draft these agreements in conformity with the laws of the appropriate U.S.-based jurisdiction. This careful drafting can quickly resolve issues that may arise later in the relationship, or even prevent those issues from manifesting altogether.
A non-competition agreement is designed to protect a company’s business prospects after the relationship with an employee ends. It can be incorporated into a larger employment agreement, or it can be a standalone document. In the broadest sense, a non-competition agreement simply prohibits a former employee from competing with his or her former employer for a set period of time and in a set geographic area. Sounds fairly straightforward, right?
If only it were so simple. Attention to the fine details is crucial to drafting an enforceable non-competition agreement, because these agreements are litigated with unbelievable frequency. Consider how a neutral party like a court will view the terms a non-competition agreement: Who is a “competitor”? What kind of activity counts as “competition”? Careful drafting will define these terms and increase that chance that a reviewing court will find the agreement enforceable.
In North Carolina, the law governing non-competition agreements is well-defined, in part because they are litigated so often. “Reasonableness” is the overarching factor that must be present for a North Carolina court to enforce these agreements. There is no magic formula here—it’s a sliding scale that courts use to weigh the key terms of the agreement and assess its overall reasonableness. In general, a non-competition agreement prohibiting competition for a broad period of time would likely need a much tighter geographic scope in order to be enforceable. Courts are keen to protect a company’s legitimate business interests, but not to the extent that a former employee’s ability to make a living is unreasonably impeded.
It is important that a company’s non-competition agreements with employees are drafted by counsel familiar with the governing law. Doing so can prevent the headache of later litigation and save the company money much in future legal fees required to litigate the enforcement of these agreements.
A non-solicitation agreement is governed largely by the same principles as a non-competition agreement, and served to protect essentially the same interests: preservation of business after an employee leaves the company. In general, non-solicitation agreements prohibit former employees from engaging with the company’s clients and customers for a set period after the employer-employee relationship ends; they can also prohibit a former employee from enticing current company employees to leave. These are powerful business interests being protected—a worst-case business scenario is a contentious separation with an employee, who then joins another firm and takes half the customers and current employees along.
In North Carolina, non-solicitation agreements are governed by the same principles governing non-competition agreements. Again, the key principle is reasonableness: an agreement must be drafted to protect the company’s business interests, but not so broad as to interfere with the employee’s own interests. Solid drafting of a non-solicitation agreement by counsel with in-depth knowledge will better protect a company’s interests, particularly if that company is just entering the U.S. market and navigating our complex regulatory web for the first time.
Sometimes, a company is engaged in business with highly sensitive proprietary information. In a world where innovation is the driving force in so many fields, a company’s trade secrets and other intellectual become the main determinative factors of the company’s profitability and success. Fortunately, U.S. law provides tools to protect this crucial information from competitors’ hands in the form of confidentiality agreements.
In the business sense, a confidentiality agreement (sometimes referred to as a “non-disclosure agreement”) is a promise by an employee to keep sensitive job-related information secret, either for a set period of time or until authorization by the employer. In an industry that relies primarily on trade secrets to protect sensitive information, these agreements are powerful tools to ensure that a company’s valuable data is secure.
The question of enforceability is a fuzzy one in North Carolina, because courts seem to be somewhat divided on this issue. On one hand, the North Carolina Court of Appeals has said that these agreements can be unlimited with respect to the time and territory they cover. (Case citation: Chemimetals Processing, Inc. v. McEneny, 476 S.E.2d 374, 376 (N.C. Ct. App. 1996)).
However, in January 2018, the North Carolina Business Court analyzed a confidentiality agreement under the same standard as a non-competition agreement. This is bad news for businesses that rely on these agreements to protect their business interests, because under this analysis, a confidentiality agreement must be reasonable and not unlimited in time or territory, meaning that former employees would be able to disclose valuable company secrets after a set amount of time.
As the means of analysis waver, it is vital for companies to engage attorneys who are sensitive to the changing legal framework surrounding confidentiality agreements. Attorneys who keep up to date with the latest developments in North Carolina law will be able to better respond to your needs and draft documents that are designed to be enforceable and protect business interests.
Navigating these uncharted waters can be intimidating for international companies expanding into new markets. Employment, non-confidentiality, non-solicitation, and confidentiality agreements are powerful tools international companies can use to safeguard their interests with respect to their U.S. markets and workforce. Critical to successfully utilizing these tools is the right legal counsel to serve as a guide and draft these tools with enforceability in mind. With the right team on your side, you can be reassured that the legal system in your new area of business will work to protect that business.
Schedule a consultation with our team of employment law attorneys to draft employment agreements for your company or to review ones you have already used. If you have concerns about your ability to protect the business interests of international companies here in the U.S., contact us so we can draft or review your employment agreements and help you protect your company.