This post describes the fascinating interaction between a contract’s choice of law and non-compete provisions in a matter that I worked on.
A longtime client received an acquisition offer from a large, publicly-held company (“Acquirer”). Once the acquisition closed, the client’s founder (“Founder”) would become a management-level employee of Acquirer.
Concern about Non-compete Provision
Although Acquirer’s proposed employment agreement generally was acceptable, Founder was concerned about its non-compete provision. That provision stated that for one year following termination of his employment, Founder would not “engage in any business activities that are competitive with the business activities of [Acquirer] or those of its subsidiary or parent companies”.
The problem was that the business of Acquirer and its affiliates was vast, and Founder’s expertise was industry-specific. In effect, Founder would not be able to work elsewhere. (more…)
In the U.S., most employment is “at will”. This means that either the employer or the employee can terminate the employment at any time, for any legitimate, non-discriminatory reason, with or without cause. The typical senior executive, in contrast, has an employment agreement that runs for a number of years and allows termination only for cause. The reason: Attracting and retaining key executives is critical for any company’s success.
By the time I am called in, the parties usually are at or near agreement on salary and the amount of equity compensation (stock options or grants). In addition, the employer’s benefits program usually is well-defined. I have found that most of the negotiation effort goes into the following provisions: