The status of non-compete agreements in the Americas is undergoing a significant transformation. Such clauses were recently banned in the United States following a landmark decision by the Federal Trade Commission. The pivotal vote has ignited discussions worldwide about the legality and perception of non-competes. This conversation is particularly prevalent in the Americas, where attention is increasingly focused on their impact and relevance.
From Canada down to Chile, questions on the enforceability and implications of non-competes are gaining momentum across the Americas. This is prompting employers and policymakers alike to reevaluate their approaches.
In this blog post, we take a deep dive into non-compete agreements in the Americas. We also uncover alternative strategies for protecting business interests while fostering a fair and competitive employment landscape. Thaina Guimaraes, Senior Manager of Client Solutions at GoGlobal, joins us to answer frequently asked questions (FAQs) on non-competes.
What does a non-compete in the Americas typically involve?
Thaina: In Latin America (LATAM) and the broader Americas, a non-compete agreement may also be known as a restrictive covenant. It generally prohibits employees from engaging in competitive activities post-termination. These agreements may restrict employees from working for competitors, soliciting clients, recruiting employees and disclosing confidential information or trade secrets.
When it comes to tech jobs, are they also required to sign non-competes?
Thaina: Tech jobs, like any other profession, may require employees to sign non-compete agreements. This is especially true if the employee has access to confidential information or trade secrets. Such agreements often apply when a role involves developing software or technology that gives the employer a competitive advantage.
How can non-competes be used effectively to protect both employer and employee’s interests?
Thaina: To use non-competes effectively and balance the interests of both parties, employers can:
- Define Scope Clearly: Non-competes must be limited to relevant activities, reasonable in duration and geographically appropriate.
- Provide Consideration: Offer something valuable to the employee in exchange for signing, such as additional compensation or continued employment.
- Clear Communication: Explain the terms and reasons for the non-compete clearly to employees.
- Regular Updates: Review and update the non-compete to reflect changes in the business or applicable laws.
What are some other considerations about non-compete?
Thaina: Other considerations regarding non-compete agreements may include:
- Applicable Law and Jurisdiction
- Blue Pencil Doctrine
- Garden Leave
- Non-Solicitation Agreements
- Choice of Law and Forum Selection Clauses
- Public Policy Considerations
- Employee Severance Packages
- Employee Raiding
- Notice Requirements
- Employee Training and Education
How do enforceability and validity vary across different jurisdictions in the Americas?
Thaina: Enforceability and validity of non-compete agreements may vary across different jurisdictions in LATAM and the broader Americas:
- Argentina: Non-compete provisions may be enforceable in all sectors if the requirements for validity are met. However, confidential information is protected even without a non-compete agreement. After the termination of the employment relationship, the employer must authorize an employer to avoid complying with a non-compete.
- Brazil: Enforcement is under the jurisdiction of labor courts and the typical remedy is compensation. To date, there have been some restraining orders, but not many. Non-compete agreements are valid if they include compensation and have a term of no more than 12 months. They must also allow the individual to take on another job in a non-competing company.
- Colombia: Non-compete agreements are prohibited in Colombian legislation in all circumstances. Exclusivity can only be enforced during the employment relationship. It is not possible to stop an employee from working for a competitor after the termination of the employment relationship.
- Mexico: Non-compete provisions may be enforceable in all sectors if the requirements for validity are met. However, any given employee may choose not to accept the non-compete arrangement and would therefore not be obliged to comply. Also, if an employee enters into a non-compete arrangement and no consideration is paid, the arrangement is not enforceable.
- Panama: Non-compete clauses may be enforceable before the civil and criminal jurisdictions. However, the success of such kinds of proceedings will depend on the evidence filed. If the non-compete agreement is in a written labor contract, there are no circumstances for the employee to escape it.
- Peru: Non-compete agreements can be recognized in all sectors and questions of enforceability will be brought before Peru’s Civil Court. For a non-compete agreement to be recognized, it must be essential for the protection of the legitimate interests of the company. It must also be limited in time (usually no more than two years) and geographic scope. Finally, it must include reasonable economic compensation.
- United States: The U.S. Federal Trade Commission (FTC) recently banned non-compete agreements for nearly all U.S. workers. Existing non-competes for senior executives may remain, although this group represents less than 0.75% of the workforce. Employers are banned from creating or enforcing new non-competes, even for senior executives.
- Venezuela: Restrictive covenants are enforceable in all sectors. According to the Labor Law Regulation, in order for restrictive covenants to be enforceable, they should be intended to protect legitimate employer interests. The agreement must include additional compensation during the length of time that the non-complete clause is in effect.
What steps should an employer take to maintain compliance with non-compete agreements in the Americas?
Thaina: Employers should take proactive steps to comply with non-compete regulations in the Americas, such as:
- Consult with Legal Experts: Seek advice from legal experts familiar with local laws and regulations.
- Draft Clear and Reasonable Agreements: Non-compete agreements should be clear, reasonable in scope and comply with local legal requirements.
- Provide Employee Training: Educate employees about the terms and implications of non-compete agreements to promote understanding and compliance.
- Regularly Review and Update Agreements: Periodically review and update non-compete agreements to align with changes in the business environment or applicable laws.
The US has recently made non-competes illegal. How can employers protect themselves?
Thaina: While non-compete agreements may be banned in the US, employers can still protect themselves by using other legal tools. This may include non-solicitation agreements, non-disclosure agreements and trade secret protection laws.
Employers should also consider using employee training and education repayment agreements. Moreover, they may implement client and customer loyalty programs, auditing, negotiation and mediation to protect their legitimate business interests.
Local expertise is key for managing non-competes in the Americas
Navigating non-compete agreements in LATAM and the broader Americas requires a deep understanding of local regulations and best practices.
Employers in LATAM and across the Americas must prioritize thorough due diligence, especially international companies unfamiliar with local legal landscapes. Ensuring non-compete agreements align with local laws and best practices is critical for mitigating risks and fostering positive employee relationships.
Given the varying legal frameworks and cultural nuances across different jurisdictions, seeking guidance from local professionals is essential. Their expertise can provide invaluable insights into navigating the complexities of non-compete agreements, ultimately promoting compliance and safeguarding company interests.
Check out our ‘What is an EOR?’ guide or contact us to talk with an international HR expert about how an EOR solution can support your business goals.