How do IT companies in the world protect themselves from competitors in the face of former employees?
I’m an outside observer in this topic - I often translate various contracts and agreements about this pain for IT companies.
Once I asked myself a question - how are they generally protected from this misfortune in different countries, and especially in Russia?
In general, the employee’s departure is 3 “polar foxes”, and not one.
- creates his own company or settles with competitors (I don’t even know which is worse);
- takes away with itself a head in which a heap of confidential information and developments is stored;
- leads away employees, as a rule, of the most valuable, which makes the “fox” even fuller.
No matter how you relate to the employee, you will inevitably think about various restrictive agreements denoted abroad by the general term non-competes .
We’ll talk about them.
What does the concept of non-competes include?
There are several types of possible restrictive agreements:
- Non-Disclosure Agreement (the non-disclosure Agreement) . It is aimed at preventing the leakage of any confidential information. It is used in most developed countries.
- an agreement on the prohibition of luring employees (the non-solicitation Agreement) . The name of the agreement speaks for itself.
- non-compete agreement (the non-competition Agreement) . The agreement indicates restrictions for the employee regarding work in the company of competitors or the creation of his own company.
- Agreement on Non-Proliferation of negative information (the non-disparagement Agreement) . We are talking about the non-dissemination of information defaming the company. This includes information about the company's internal policy and other information that is dangerous to its reputation.
- an agreement on non-intervention (the non-interference Agreement) . In accordance with this agreement, employees are prohibited from discussing the personnel policy of the company and luring personnel to work in another company.
- commitment to non-interacting (the non-are dealing a covenant) . It prohibits interaction with clients of the previous employer on any issue.
- agreement on suspension from work before dismissal with retention of wages (garden leave) . The essence of the restriction is that from the moment of receipt of the notice of dismissal, the employee is sent on paid leave. He stays on this vacation until the moment of actual dismissal from the company. Thus, the employee is suspended from his activities for a time sufficient to ensure that the information that he has is out of date. Accordingly, subsequently he will no longer be able to use it.
Among the listed restrictive agreements, the most commonly used non-competition agreement (non-competition agreement , hereinafter NCA ). This document first appeared in English law in the 18th century. After which it began to be used in France, Germany, Spain, the USA and other countries.
The essence of NCA
A non-competition agreement can be either part of a regular employment contract or non-disclosure agreement, or a separate document. By signing this agreement, the employee agrees not to get a job and not to lure employees to competitors for a certain period of time after leaving the company. In addition, he cannot engage in activities that are defined as competing with the employer.
In addition to the time period, the agreement takes into account the following:
- field of activity from which it is necessary to refrain . The agreement indicates what kind of professional or entrepreneurial activity an employee cannot engage in. On the one hand, the conditions of the NCA are aimed at protecting the interests and rights of the employer. For this purpose, for example, a similar position that an employee cannot hold, or a list of specific competing companies for which he cannot be employed, are indicated. On the other hand, the head of the company does not have the right to deprive the employee of the opportunity to earn a living. If the NCA completely restricts the employee’s right to work in general, including the sphere of activity to which the head of the company is not related, such an agreement may be invalidated.
- duration limits. The duration of the restriction may be different - from 6 months to 2-3 years. The best option is within 1 year. The reference point is also indicated when this agreement becomes effective.
- territory within which competition is prohibited. It can be as separate federal lands, regions, counties or states, or the territory of the entire state.
- provisions of the law governing this agreement. This item is of particular importance to those who sign an agreement with employees or companies from other countries. The document clearly indicates the laws of which particular state or state this agreement is subject to. It may happen that the NCA operates in a state where agreements of this kind are prohibited.
- mutual exchange of values: compensation, bonuses to payments under the main contract, salary increase . If the head of the company obliges the employee not to engage in their professional activities, he must somehow compensate for this. The options can be different - from a one-time payment of a certain amount after leaving the company to an increase in wages while working in the current position. For example, the Italian Civil Code states that if the employer does not pay compensation to the employee who signed the NCA, the agreement is invalidated. The amount of compensation also matters. In accordance with the Illinois Freedom of Labor Act of August 19, 2016, employees are prohibited from signing a non-competition agreement if their wages are less than $ 13 per hour.
- right to terminate the non-competition agreement. This right is granted or not granted by law, within the framework of which a non-competition agreement is valid. Sometimes only one of the parties can do this. You can terminate the NCA by mutual agreement. Again, indicate the period during which this can be done.
- liability for breach of agreement . In case of violation of the agreement, the employee, as a rule, pays the compensation specified in the contract, compensates for the damage caused, or compensates for both. Also, liability for breach of obligations may be assigned to the new employer. This happens if he knew about the NCA an employee whom he hires, but ignored this point.
Non-competition agreement in terms of labor legislation of the Russian Federation
Some employers in the Russian Federation seek to protect their business and enter into non-competition agreements with their employees. However, the courts declare such agreements illegal and, as a result, invalid. In accordance with article 37 of the Constitution of the Russian Federation, all citizens of the country have the right to freedom of labor, and also have the right to dispose of their abilities themselves. Accordingly, no one has the right to limit these rights in any way. In addition to the Constitution, the rights of citizens to work are protected by the Civil Code of the Russian Federation and are supported by the letter of the Ministry of Labor of Russia dated October 19, 2017 No. 14-2 / В-942.
Other ways to protect the interests of the employer in Russia
There are other ways to protect the interests of the employer in Russia. These include:
- confidentiality non-disclosure agreement . On the one hand, if you oblige an employee to sign this agreement, this does not give a one hundred percent guarantee that information will not be leaked through any of the many channels of information leakage. In addition, the non-disclosure agreement and the non-competition agreement nevertheless differ in subject and purpose, although they protect the interests of the employer. On the other hand, the agreement on non-disclosure of confidential information is recognized as a rather effective tool in the law of the Russian Federation, if it is used correctly as an element of protecting trade secrets. How can this be done, Pavel Mishchenko tells in more detail , the article “When the NDA is Useless” and Mikhail Emeliannikov, the speech “Is it possible to protect secrets in a Russian court” .
- application of the conflict of laws principle “place of work”.In this case, you need to pay attention to the legislation in accordance with which you work. If the company employs employees from other countries, but the company operates in the territory of the Russian Federation, then according to article 11 of the Labor Code of the Russian Federation, the rules of Russian labor law apply. If the company’s activities are not conducted in the territory of the Russian Federation, then the laws of the country in whose territory the activities are carried out apply. A non-competition agreement is concluded in many countries. The question is what restrictions and obligations does it impose on both parties in accordance with the legislation to which the NCA is subject. We are talking about the duration of restrictions, bonuses and the amount of compensation, and other factors that we mentioned above.
- Federal Law of July 26, 2006 No. 135-ФЗ On Protection of Competition. The law prohibits unfair competition, which violates the requirements of integrity, reasonableness and justice.
Foreign experience in the application of non-competition agreements
As already mentioned, if the company is not registered in the territory of the Russian Federation, the laws of the country where it is registered take effect. In this case, the head of the company has the opportunity to apply the non-competition agreement in order to protect the interests of his business. And here it is necessary to take into account the features of the use of non-competition agreements in a particular country or even state, when it comes to the United States.
Let's look at some examples.
English law is considered a model in this matter. Even labor law in the United States in matters of non-competition does not protect the interests of employers so much, despite the fact that the level of judicial protection in the United States is quite high.
In the UK, employees sign several non-competition agreements, or, as they are also called, reservations or obligations:
- commitment to non-interacting (the non-are dealing a covenant) ;
- non-compete agreement (the non-competition Agreement) ;
- an agreement on the prohibition of luring employees (the non-solicitation Agreement) ;
- agreement on suspension from work before dismissal with retention of wages (garden leave) . According to the latest agreement, the employee receives wages during the year. Its size is at least 1/3 of the average earnings for the last year. But he does not have the right to occupy a similar position or become a direct competitor to the former employer.
In Canada, employers offer employees to sign an agreement on non-competition (non-competition agreement) and an agreement on the prohibition of luring employees (the non-solicitation Agreement) . Both agreements clearly spell out the validity period, the area of activity within which it is forbidden to compete, and the territory to which the agreements apply. However, article 2029 of the Quebec Civil Code states that an employer cannot use the clause on the prohibition of competition if he terminated the employment contract with the employee for no good reason or if he himself gave the employee such an excuse to terminate the contract.
In countries such as Italy, Spain, Germany, France and the Netherlands, the non-competition agreement provides for substantial compensation for the employee. Moreover, the amount of compensation directly depends on the duration of the agreement and on the restrictions that are spelled out in it.
In the United States, most states have legalized a non-competition agreement, although in states such as California, Montana, North Dakota and Oklahoma, Hawaii, it is prohibited in whole or in part.
In Florida, a non-competition agreement is very common. But its requirements should be clearly spelled out and should be aimed at protecting the legitimate interests of the company, that is, be reasonable. It is impossible to accuse an employee of violating the terms of the agreement if he worked in the company for only 2 or 3 months.
The USA also has a number of circumstances that could invalidate the already signed agreement on the non-competition of legal force in whole or in part:
- the employee was fired or he quit himself due to the fact that the employer encouraged him to engage in illegal activities, and he refused to comply with this requirement;
- the employer has violated one or more conditions of the employment contract;
- the employer did not inform the employee in advance that he would sign a non-competition agreement, and the employee found out about this only after he quit his previous job;
- the employee resides in a state in which this agreement is prohibited by law in whole or in part, but he was forced to sign a non-competition agreement while working for a company located in another state.
In conclusion, we can come to the following conclusion. Despite the absence in Russian law of such a thing as a “non-competition agreement”, company executives have a chance to protect their business from dishonest employees.
If the company is registered in Russia, you can apply the non-disclosure agreement of confidential information as an element of protecting trade secrets. At the same time, one should introduce a trade secret regime in the company, approve the Company Regulation on Trade Secret and clearly state what responsibility the employee will bear for its violation.
The legislation of the Russian Federation also has the Federal Law “On Protection of Competition”. Some lawyers believe that it can be applied in the contract, but they forgot to tell you exactly how, but we did not find specific language. If you know how, share in the comments.
If it is possible to use the principle of “law of the place of work” and choose the legislation that will regulate and protect the activities of the company, it is better to give preference to foreign, in particular, English law. Alternatively, you can pay more attention to employees and provide them with the opportunity for professional growth with adequate compensation. It is likely that this will help reduce the risk of valuable personnel leaving the company.
But it is not exactly ;-)
Peace and prosperity to your business.
PS I forgot to attach a bibliography , suddenly someone wants to immerse themselves in the question too.