Are senior managers subject to non-competes and if so what is the general duration?

Private Equity

Austria Small Flag Austria

Senior managers participating in management incentive schemes are usually subject to non-competes. By law, managing directors of stock corporations and limited liability companies are subject to non-compete obligations for as long as they hold their position. Exemptions are rarely agreed.

Contractual non-compete obligations usually cover one year after termination of the position and are usually limited to the company's line of business and Austria.

Japan Small Flag Japan

Senior managers who are employees are usually subject to non-compete obligations under their employment contracts or the work rules applicable to them. Even where there is no express provision in the employment contracts or the work rules applicable to them, it is construed that employees will be subject to implicit non-compete obligations, although their scope is ambiguous. Senior managers who are directors do not often enter into any written employment contract with the company, but will still be subject to statutory non-compete obligations under the Companies Act of Japan, which prohibit them from engaging in transactions that belong to or are within the scope of the business of the company unless board approval is obtained.

Whether any post-employment non-compete obligations apply to such senior managers will in principle depend on whether there is any express agreement between the company and the senior managers in respect to such obligations. Typically, such agreement may be provided in the employment contracts, or work rules or internal regulations relating to directors. Also, with respect to a portfolio company of a financial sponsor, executive services agreements setting forth non-compete obligations are often executed between the financial sponsor and the key management members (see response to Question 15 below).

The Japanese courts typically hold post-employment non-compete obligations valid for a period of one to two years, and in some instances even longer if there are rational reasons to uphold long term non-compete obligations. Non-compete obligations that are determined to be overly broad and restrictive by the court will be rendered unenforceable. In determining the enforceability of particular non-compete obligations, the courts also typically consider and weigh factors such as the position and responsibility of the former senior managers, whether the former senior managers were adequately compensated, and the scope and breadth of the non-compete obligations.

Mauritius Small Flag Mauritius

It is common to have non-competition clauses in the employment contract of senior managers. The usual market practice is 2-3 years.

Norway Small Flag Norway

The shareholders' agreement governing managements investment in the portfolio company would customarily contain non-compete and non-solicitation provisions. The scope and duration of such restrictive covenants needs to be carefully considered to ensure that they are enforceable. Generally, a length of 12 month from the time the employee ceases to be a shareholder is in most cases deemed to be acceptable.

Switzerland Small Flag Switzerland

Senior managers are often subject to non-compete undertakings in Switzerland. The duration depends on whether the manager is at the same time invested in the group (e.g. through a management incentive scheme) and, if so, the rights and obligations as shareholder. If, for example, a manager has various information and governance rights as well as the possibility to exit its investment after a certain period of time, a non-compete undertaking may be justified even after such manager ceases to be an employee of the company. Generally, non-competes may not exceed three years following the end of the employment relationship or the investment and need to be limited geographically and with respect to the scope.

The Netherlands Small Flag The Netherlands

Yes, senior managers are usually subject to restrictive covenants, such as non-competition, non-solicitation and non-poaching provisions. These clauses are generally applicable for as long as they hold an (indirect) interest in the portfolio company and for a period of 12 months thereafter.

United Kingdom Small Flag United Kingdom

Yes.

The general rule is that the maximum period of time that a court would be willing to enforce a non-compete in an employment context would be 6- 12 months. There is no requirement (like in other jurisdictions) to pay compensation to the individual in order to enforce.

If the manager is also involved either as seller or a shareholder in the purchaser’s acquisition structure then there may be the ability to extend the non-compete protections in those scenarios.

Clearly there are other contractual and non-contractual remedies that an employing company may be entitled to rely upon to protect its business (e.g. confidentiality, duty of fidelity and director’s fiduciary duties) that may extend beyond that period.

Like in many other jurisdictions, the balance between restraint of trade and protection of legitimate business interests makes enforceability fact specific.

Belgium Small Flag Belgium

At senior level, non-compete clauses are relatively common. However, in practice we see that non-compete clauses for employees are rarely activated after termination of employment: in order for the non-compete to be valid, a consideration is to be paid equal to the employee’s salary for at least half of the restrictive period if the clause is activated. Often this is not considered worth the cost. The validity conditions for non-compete clauses for self-employed managers are less stringent and non-competes (e.g. in terms of consideration) are fairly standard in these types of agreements.

The non-compete period for senior managers is usually set at 12 months following termination of their employment. In exceptional circumstances, we sometimes see non-compete periods of 24 months.

Poland Small Flag Poland

Non-competes are often used and vary in duration from 12 to 24 months. These are often more elaborate clauses which encompass non-solicitation as well.

Portugal Small Flag Portugal

Senior managers (who are company employees) may be subject to non-compete provisions which have a maximum duration of 2 years, provided a compensation is paid. The duration of a non-compete clause for members of board of directors may be, depending on the circumstances, longer than 2 years.

China Small Flag China

Yes. The maximum term typically is no more than two years after employment termination (as Chinese courts would be unlikely to enforce a non-compete with a longer term). An employer is required to pay the employee certain compensation (e.g. at least 30% of the employee’s average salary amount in the past 12 months) in order to enforce post-termination non-compete obligations. If the manager is also involved either as seller or a shareholder in the purchaser’s acquisition structure then it is possible to extend the non-compete protections in those scenarios.

Finland Small Flag Finland

Senior managers of portfolio companies are almost without exception subject to non-competes. A typical duration of a non-compete in a shareholders’ agreement for management with an equity stake in the company is around 12 to 24 months (and sometimes up to 36 months in connection with significant manager investments), while employment (or director) agreements customarily include non-compete undertakings for a period of 6 to 12 months from the end of the employment (and sometimes up to 24 months in connection with significant manager investments). Non-competes exceeding three years are generally not deemed enforceable in Finland.

France Small Flag France

It is market practice for senior managers to be subject to exclusivity and non-compete obligations. The length of such obligations varies from 12 to 24 months it being specified that managers shall receive a compensation in exchange for their non-compete undertaking unless they only had a corporate office and no employee position. However, in the latter case, these managers will request to be granted such compensation.

Germany Small Flag Germany

The managing directors service agreements and the employment agreements of key employees usually provide for non-compete restrictions including a post-contractual non-compete obligation for twelve to twenty four months following termination of the service or employment agreement. Pursuant to German law, post-contractual non-compete obligations are only enforceable if an additional compensation is paid for the term of the post-contractual non-compete obligation which depends on the impact of the non-compete agreement on the managing director. As a general rule, the compensation for the post-contractual non-compete should equal a minimum amount of 50% of the last contractual earnings of the managing director or key employee.

Greece Small Flag Greece

Non-compete restrictions for senior managers are very common. Nevertheless, the validity of these restrictive covenants can be challenged under the principle of good faith (articles 178 and 179 of the Greek Civil Code), following an evaluation of all the special conditions of each specific case. Accordingly, non-compete covenants are valid only if the employer can establish that:

(a) it has a legitimate business interest that it is seeking to protect; legitimate business interests include trade secrets and confidential information, and trade connections such as customers or suppliers;

(b) that the restriction does restrict the professional advancement of the employee in an unfair way, meaning that the binding nature of the clause cannot affecting disproportionally the economic and personal freedom of the employee for the purposes of protecting the employer’s legitimate business interests.; and

(c) the duration and the geographical scope of the restriction is limited; open-ended non-compete restrictions after termination are null and void; usually, the non-compete clause which applies after the lapse of termination of the agreement cannot exceed a year.

It is not mandatory under the Greek law for the employee to receive a compensation during the period which the non-compete covenant is in effect. Nevertheless, this may be an important criterion in favor of the validity of the relative restrictive covenant if it is challenged before the Court.

Ireland Small Flag Ireland

Yes, one year in an employment contract, two years in an SPA.

Luxembourg Small Flag Luxembourg

Within the context of an employment contract, a non-compete clause cannot be for a period exceeding 12 months after termination of the contract.

However, a manager’s contract which is not subject to the provisions of the Luxembourg Labour Law Code (Code du Travail) is subject to the ordinary provisions of the Luxembourg Civil Code, which provides that the parties are subject to the principle of contractual freedom. The company is therefore free to decide whether or not it wants to impose a non-competition obligation on the manager for a certain period of time after termination of his/her contract.

There is no standard duration or limitation with regard to the duration of a non-compete clause provided in a manager’s contract. However, in order for a company to restrict a manager’s freedom of commerce and industry and free competition, there must be a legitimate interest at stake. The legitimate interest must therefore justify the period of time during which the manager is subject to a non-compete clause.

If a non-compete clause is disputed before a Luxembourg court, the courts will (i) require the clause to be limited in time in order to avoid a perpetual prohibition on the manager but will also (ii) analyse the company’s legitimate interest in the non-compete obligation imposed on the manager and will consequently compare and aim to balance out the interests of both contracting parties.

United States Small Flag United States

Yes.

The general rule is that the maximum period of time that a court would be willing to enforce a non-compete in an employment context would be 1- 2 years. There is no requirement (like in other jurisdictions) to pay compensation to the individual in order to enforce, but the courts in the U.S. will require consideration for entering into a non-compete. In the U.S., the state law will govern the enforceability of the non-compete and determine the adequacy of the consideration.

If the manager is also involved either as seller or a shareholder in the purchaser’s acquisition structure then there may be the ability to extend the non-compete protections in those scenarios.

Clearly there are other contractual and non-contractual remedies that an employing company may be entitled to rely upon to protect its business (e.g. confidentiality, duty of fidelity and director’s fiduciary duties) that may extend beyond that period.

Like in many other jurisdictions, the balance between restraint of trade and protection of legitimate business interests makes enforceability fact specific.

Sweden Small Flag Sweden

Yes, most commonly during their holding of shares and for twenty-four months thereafter.

Malta Small Flag Malta

The inclusion of non-compete clauses in senior management contracts has become more commonplace, and the duration for such clauses is usually between 6 and 18 months. It is important, however, that if such clauses are to be upheld as valid and enforceable by the Maltese courts, there must be fair compensation to the employee during the non-compete period, thereby compensating the employee to refrain from undertaking any role in the industry that can be construed as competition to his/her previous employer’s business.

India Small Flag India

Whilst non-compete clauses during the term of the employment are recognised under Indian law, post-employment period non-compete clauses have more conditions and tend to have difficulty in being enforced. Nevertheless, it is common to have non-compete clauses during and post-employment. Typically, post termination non-compete clauses are between 6 to 18 months.

Updated: March 8, 2019