Businesses worldwide have traditionally relied on non-compete agreements as a cornerstone for safeguarding their competitive advantage. But are we entering a new era in protecting business interests?
By restricting former employees from working with competitors, non-competes aim to protect trade secrets, client lists and intellectual property (IP). However, these agreements appear to be falling out of favor. Increasingly seen as overly restrictive, they face mounting scrutiny from lawmakers, employees and courts alike.
A landmark decision by the US Federal Trade Commission (FTC) recently banned non-competes, signaling a sea change in employment law. In Europe, the sentiment is moving in a similar direction, favoring worker mobility and challenging the enforceability of non-competes. Elsewhere, countries are expected to follow suit, making non-competes a much-debated legal tool in the global business landscape.
For companies operating through Employer of Record (EOR) models, these challenges are amplified, as navigating local laws can make it difficult to enforce such agreements across borders.
Given this changing environment, it’s time for companies to consider alternative strategies to protect their business interests without relying solely on non-compete agreements. In this blog post, we reveal eight alternative methods that can provide robust protection while complying with diverse legal frameworks.
Non-disclosure agreements (NDAs)
Non-disclosure Agreements (NDAs) are one of the most widely used and enforceable alternatives to non-competes. NDAs focus on preventing the unauthorized disclosure of sensitive company information, such as trade secrets, proprietary data and client details. They don’t restrict where an employee can work, making them easier to enforce globally.
Advantages:
- NDAs face fewer legal challenges than non-competes.
- They can cover various types of confidential information, protecting business secrets effectively.
Implementation tips:
- Clearly define what information is deemed confidential.
- Specify how long the confidentiality obligation will last.
- Conduct due diligence in aligning the NDA with local laws, as requirements may vary by country.
In the context of EOR arrangements, an experienced EOR provider can help tailor NDAs to local jurisdictions, promoting compliance and enforceability.
Non-solicitation agreements
Non-solicitation agreements prevent former employees from poaching the company’s clients, customers or employees. While they don’t prohibit employees from joining a competitor, they address a significant concern: losing key clients and talent.
Advantages:
- Non-solicitation agreements are often more enforceable than non-competes because they are less restrictive.
- They focus specifically on protecting valuable relationships, rather than limiting employment opportunities.
Implementation tips:
- Clearly define what constitutes “solicitation.”
- Limit the scope and duration to protect legitimate business interests while remaining fair to the employee.
Non-solicitation agreements, when combined with an NDA, provide strong protection for client relationships and workforce stability.
Garden leave provisions
Garden leave requires employees to stay away from work during their notice period while continuing to receive their salary. First, this prevents employees from immediately joining a competitor. It also gives the company time to protect sensitive business information and transition clients.
Advantages:
- Immediate protection upon the employee’s departure.
- The employee remains contractually obligated during the leave period, providing a buffer against competition.
Implementation tips:
- Define reasonable durations for garden leave based on the employee’s role and access to sensitive information.
- Be prepared for the financial cost of paying employees who are not working.
This strategy is particularly useful in countries like the UK, where garden leave is a common practice in senior-level roles.
IP agreements
IP agreements are crucial for companies that depend on innovation, creativity or technology. These agreements clarify the ownership of any inventions, patents or proprietary processes developed during the employee’s tenure. The company retains control over valuable IP even after the employee leaves.
Advantages:
- Directly protects a company’s innovations, which are often the most valuable business assets.
- Generally well-recognized and enforceable across jurisdictions.
Implementation tips:
- Clearly define what constitutes company-owned IP.
- Tailor the agreement to local laws, especially regarding employee rights to inventions.
Incorporating IP agreements into employment contracts protects creative assets without restricting employee mobility, making them easier to enforce.
Strengthening trade secret protections
Strengthening internal trade secret protections is a proactive measure that doesn’t rely on legal contracts. Companies can develop internal policies and technological systems to secure sensitive information. Implementing strict access controls, data classification and employee training can safeguard trade secrets even when employees move on.
Advantages:
- A proactive, non-restrictive approach to protecting company assets.
- Less reliance on the legal enforceability of post-employment contracts.
Implementation tips:
- Regularly update security protocols and train employees in trade secret management.
- Use technological solutions like encryption and access control to limit who can access sensitive information.
By bolstering internal protections, businesses reduce the need for external legal measures like non-competes.
Longer notice periods
In some countries, extended notice periods can serve as a functional alternative to non-compete agreements. By requiring employees to provide advanced notice of their departure, businesses gain time to transition responsibilities. This can help prepare you for the loss of key personnel.
Advantages:
- Provides more time for client handovers and knowledge transfer.
- May deter competitors from immediately poaching key employees.
Implementation tips:
- Observe compliance with local labor laws, as notice period requirements vary by country.
- Consider offering incentives for employees to serve out the full notice period rather than leaving early.
Longer notice periods can serve as a buffer, allowing your company to protect relationships with clients and partners.
Invest in retention strategies
Rather than focusing on restrictive legal measures, companies can invest in strategies that encourage employees to stay. Competitive compensation, comprehensive benefits, career development opportunities and a positive work environment can enhance employee loyalty and reduce turnover.
Advantages:
- Retention strategies reduce the need for restrictive contracts.
- They enhance the overall productivity and morale of the workforce.
Implementation tips:
- Regularly benchmark compensation packages to ensure competitiveness.
- Provide clear career progression and skill development opportunities.
A proactive approach to employee retention is a powerful tool for maintaining a strong, motivated workforce without relying on legal restrictions.
Client and customer relationship management
By institutionalizing customer relationships and using customer relationship management (CRM) systems, companies can reduce their reliance on individual employees for maintaining client accounts. This reduces the risk of losing business when key employees leave.
Advantages:
- Protects client relationships at an organizational level, bolstering continuity even after employee departures.
- Strengthens internal collaboration and knowledge-sharing.
Implementation tips:
- Emphasize that multiple team members should maintain relationships with key clients.
- Use CRM systems to track client interactions and preferences.
A strong CRM strategy means that no single employee holds too much control over customer relationships. This can protect your company in case of staff changes.
Leveraging local expertise in a new era
As non-compete agreements face growing legal challenges and employee resistance, businesses must adapt by adopting alternative strategies like NDAs, non-solicitation clauses and stronger trade secret protections. Implementing these effectively requires more than legal adjustments—it demands local expertise.
This is where partnering with a knowledgeable EOR becomes essential. An experienced provider can offer nuanced insights into which strategies are both legally sound and practically effective in each jurisdiction. They can assist in drafting and implementing agreements that comply with local labor laws while accounting for cultural norms. When done correctly, this can help you overcome the risks of non-enforceable agreements or strained employee relationships.
With the right EOR partner, businesses can navigate legal complexities, protect their interests and thrive in a shifting global landscape – even as traditional non-competes lose favor.
Contact us to talk with an international expansion expert about how our cross-border solutions can support your business goals.