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IACCM - International Association for Contract & Commercial Management Contracting Excellence Magazine
 

Contracting Excellence Magazine - Jan 2009

 
 

In This Interim Edition Of Contracting Excellence ..........

 

 

 


 

2009: Restoring Integrity - Our Mission Has Arrived

 
As we enter a new year, the quality and integrity of trading relationships has never been more important. Buffeted by corporate failures, the eyes of the world are focused on the behavior of companies and business professionals. Regulation is not the answer; it is time for corporations to self-regulate, through improved governance systems and updated business controls.
 
 

As we enter a new year, the quality and integrity of trading relationships has never been more important. Buffeted by corporate failures, the eyes of the world are focused on the behavior of companies and business professionals. Regulation is not the answer; it is time for corporations to self-regulate, through improved governance systems and updated business controls.

The corporate failures of recent years have ultimately been driven by unwise or unethical business commitments, in most cases transacted through contracts. Where was our community when those abuses were occurring? What is our role, not only in overseeing transactional risk, but also in assessing portfolio risks – the scenarios that arise from a package of contracts and relationships? What role did we have - or should we have had - in influencing or overseeing business policies, processes and practices that might have reduced the chances of these lapses in risk competence.

2009 will bring dramatic changes to the way corporations are managed and organized. Those changes represent a remarkable opportunity for the expanded deployment of contract, legal and procurement functions. The relevance of our role is without question. Many of us exhibit precisely the qualities of judgment and breadth of understanding that have been so notably lacking in recent years. The challenge will be whether we have the hunger and the imagination to rise to the challenge. It will demand upgraded skills, a readiness to adopt new methods and systems, a willingness to drive research and training that assists corporate strategy and oversight.

IACCM has invested in an expanded team and has built the capabilities to assist our members (see article on the IACCM team below). For those who wish to take positions of leadership, we are here to support you. In this interim edition of Contracting Excellence, we feature an update on how IACCM is leading the response to our community's needs (see next article 'Ethics In Contracting'), plus selected insights to key areas of  ethics and governance that may represent the core of our added-value in the years ahead.
 

We wish all our members a happy and prosperous 2009 and look forward to working with you for the benefit not only of our profession, but also the restoration and health of world trade.

Tim Cummins

CEO, IACCM

 
 

 

 

 

 

 


 

Ethics In Contracting

 
Last month, IACCM announced the formation of a group to oversee and comment upon good and bad practices in contracting and related policies and practices. There is an abundance of material - ranging from payment terms, to bonus schemes that induce poor commitment decisions, to trade practices with emerging economies, to anti-competitive or burdensome terms imposed through market power. A key purpose of the group is to raise the profile of the contracts community as a key source of good governance.
 
 

Last month, IACCM announced the formation of a group to oversee and comment upon good and bad practices in contracting and related policies and practices. There is an abundance of material - ranging from payement terms, to bonus schemes that induce poor commitment decisions, to trade practices with emerging economies, to anti-competitive or burdensome terms imposed through market power. A key purpose of the group is to raise the profile of the contracts community as a key source of good governance.

More than 40 IACCM members from 14 countries signed up to be part of the initial steering group and already a series of examples are flowing in for consideration and comment. This week, IACCM was interviewed by 'Ethical Governance' magazine on the subject of payment terms - the ethics of extending such terms during a time of economic stress; the question of whether payment policy and performance should become part of the Corporate Social Responsibility report.

Members submitted a wide range of views on this topic, but there is of course broad agreement that 'bullying' behavior that potentially drives small suppliers out of business is not ethical. And there was wide concern about unilateral imposition of discounts for early payment, especially when 'early' might still be 2 - 3 months after delivery of the goods or services.

Other examples that have been cited include the use of onerous and one-sided non-disclosure agreements; the practice of supplier bundling of goods and services; and the aggressive pursuit of royalty and licensing claims by the legal fraternity on behalf of their large technology customers.

Moving to examples of positive behavior, we have highlighted policies by the UK Government to cut payment cycle times, to safeguard supplier cash flow. And we are about to start a fascinating discussion on the extent to which the credit crunch places government in a position to drive new ethical standards and policies by its suppliers (again, the  UK Government issued a discussion paper on this topic earlier this year).

Many years ago, western governments played a large part in the collapse of apartheid by requiring their suppliers to desist from doing business in South Africa. To what extent and in what areas is it legitimate for government to pursue policy objectives through contract terms? When does an ethical position become a party-political position, or a matter of trade constraint?

With increasing debate and transparency on business ethics, there is no question that contract practices and policies will be subject to growing scrutiny. This represents a major change in the potential mission of those engaged in the implementation and management of contracts - lawyers, procurement and contracts / commercial professionals. It also demands a new and heightened profile by IACCM. As the only association with a cross-industry, buy and sell side perspective and a global viewpoint, it is imperative that we oversee this important field and act as a powerful advocate and campaigner for good practice.

If you are interested in participating in this exciting new IACCM group, please write to ncarstens@iaccm.com.

 
 

Negotiation: A Bridge Between The East And The West

 
In this article, IACCM member Gordon Tsang describes some of the changes in Chinese negotiations with the West. His many years of experience in China, including work with a number of large US corporations, have now been supplemented by relocation to New York, where he works as a freelance negotiator.
 
 

By Gordon Tsang

In this article, IACCM member Gordon Tsang describes some of the changes in Chinese negotiations with the West. His many years of experience in China, including work with a number of large US corporations, have now been supplemented by relocation to New York, where he works as a freelance negotiator.

The Hong Kong Special Administrative Region Government of the People’s Republic of China (PRC) has always been proactive in organizing events and seminars for investors from the West to invest in China. Recent examples include "Your Winning Formula In the Greater Pearl River Delta of China" Seminar on June 9 this year in Chicago and the upcoming 2009 Asian Financial Forum for the Banking and Finance Industry in Hong Kong on January 19 and 20.

It has been a common scenario that Asian countries always want to promote foreign investment from the West, especially from the U.S. It is because U.S. is always perceived and recognized as the steam engine of the world economic train. We can easily see the truth of this perception when we look at the recent economic impact of U.S. collapse to the world economy. Almost everyone is being affected one way or the other. 
 
As a long time contracts negotiator, I have experienced the skepticism and wariness between the western investors or sellers and the Chinese buyers. Negotiation to the conclusion of a single commercial contract could take continuous weeks, including weekends, of non-stop round the clock gives and takes between the parties, with business interpreters and translators on both sides. In the past, all foreign contracts were centrally handled and negotiated by experienced business interpreters or negotiators from the PRC Government authority, which represented all Chinese firms or buyers at that time. That was the extreme in the very beginning, when China first opened up its trade doors decades ago. You can imagine how little trust was placed by the PRC Government to the foreign investors at that time!
 
A commission was required to be paid by the contracting parties to the PRC Government authority in providing the negotiation and interpretation services. It was to ensure fair trade or that the Chinese buyers will not be 'ripped off' by foreign investors easily. At least that was the intention we were led to understand! As a representative of the seller, I found negotiation was always tough and difficult, not to mention that it was always very time consuming. Once the negotiation sessions began, we were required to station in Beijing or Shanghai for weeks or months, in order to finish the contract negotiation and conclude the deal. For the Western negotiators, Confidential information, nondisclosure, Intellectual property rights, limitation of liabilities and arbitration were common issues.
 
More than a decade later, the scenario nowadays is where many successful Chinese entrepreneurs or investors want to invest in the West, especially in the U.S. The experience is different. While the contracts negotiation process may have remained largely the same, the skepticism on the Chinese side has been much reduced. Business interpreters or negotiators from the PRC Government authority are gone. Chinese enterprises are free to use their own negotiators. Translators are seldom employed, as most Chinese negotiators or executives speak fluent English.
 
On the other hand, the skepticism or protectionism on the U.S. side remains relatively unchanged. Confidential information, nondisclosure, Intellectual property rights, and limitation of liabilities are still the common issues. In the latest contract negotiation on a joint venture agreement between two manufacturers in China and U.S., we advised the Chinese partner that while there is clear limitation of liabilities on the U.S. side, there is no limit on the Chinese side. Not only that, the Chinese partner is personally liable to any loss suffered as a result of the joint venture. The six manufacturing firms personally owned by the Chinese partner will be used as collateral. The agreement was drafted by a U.S. law firm employed by the U.S. partner and the associated legal services fees, including the agreement negotiation services acting on behalf of the U.S. partner, will have to be shared by the Chinese partner.
 
From time to time, people ask me for tips and hints of doing business in China. Maybe one of the obvious tips and hints is to reduce the skepticism and protectionism against Chinese companies. Despite all the advices and caveats we gave to the Chinese partner, he still insisted to go on with the negotiation and intended to continue the “partnership”. Why? Nowadays, Chinese entrepreneurs are getting rich and successful within mainland China. They are desperate to expand their business and it is their pride to have expanded to the U.S. with U.S. business partners. So, they become more flexible and are willing to take more risk. Without the hurdle of skepticism and protectionism, it would be much easier and smoother in doing business with Chinese companies in mainland China - and perhaps in forging long-term partnerships.
 
Contracts are one of the major pitfalls the new generations of successful Chinese entrepreneurs fall into. Chinese used to believe that “our teeth are as solid as gold” and therefore they trusted oral commitments. Contractual commitment in writing are not always required or, if required, it is just a matter of formality. The Chinese partner was astonished to find that the material terms of the joint venture agreement were so different from what they had agreed orally. The business risks and costs of the joint venture were supposed to be shared reasonably between them as business partners.
 
With the business interpreters or negotiators from the PRC Government authority gone, new generations of Chinese firms are having to adjust to the need for contracts negotiation - but they are not used to hiring external legal firms nor having any of their own contracts negotiation resources internally under the company infrastructure, such as the corporate legal department, contracts negotiation department, or business practices department.
 
Experienced freelance contracts negotiators are sometimes being employed by Chinese firms to conclude business deals and used as a bridge between the East and the West. This is how I now operate - and it is an opportunity that has led me to bring my background and knowledge to the United States.
 
Gordon Tsang
Freelance Contracts Negotiator
Email: contracts_negotiator@yahoo.com
 
 
About the Author
Gordon Tsang has been a certified member of IACCM since 2002. He is a freelance contracts negotiator currently stationed in New York.
 
Anyone who happens to know any lawyer or legal firm that would take on big cases involving the financial sector with potentially huge punitive damages awards on a contingency fee basis is hereby requested to send Gordon an email.
 
 

Automation: Document Management vs. Contract Management

 
In November, we featured an article that promoted the values of Sharepoint as a contract management tool. This month, we asked Ashif Mawji, CEO of Upside Software, to offer his thoughts on the merits of dedicated contract management applications.
 
 
By Ashif Mawji, CEO of Upside Software

Overview
 
With the increasing global landscape of business today, companies are dealing with a backlog of documents, contracts, and in essence, official paperwork. Coordinating the transfer of knowledge between internal and external stakeholders is a daunting task. Simply keeping a paper trail is no longer enough to keep up with ever-changing data that is often business critical and demands attention.
 
Organizations are realizing a need for software that manages the sea of paperwork they deal with on a daily basis. They understand the importance of converting and storing contracts and documents into digital format and are beginning to seek such solutions. What types of software can help to control and lighten the paper overload? The two main kinds of solutions companies search for and evaluate to help manage paperwork are contract lifecycle management (CLM) and document management (DM) software.
 
Document Management vs. Contract Management
 
Document management is focused on storing and archiving electronic document formats such as Word, Excel, or e-mail files while presenting these documents in their native or scanned formats. A large contributing factor to document management's success and integration into current business operations is its ability to set security controls by restricting access only to authorized users.
 
A leading CLM provider will be able to offer the following at minimum:
 
·         Workflow to establish authorized users and govern at a clause/section level
·         Storage, retrieval, filing, archiving, and retention of all documents
·         Revision control ensures content security for new and existing contracts
·         Distribution to authorized users and clients
·         Adherence to compliance items vital to contracts, including compliance management at the clause level
·         Ability to create model agreements (templates) and implement business rules to govern which templates, sections, and clauses to be used automatically when creating specific types of contracts
·         Associate meta data and intelligence at the clause level
·         Provide a governed contract initiation process that leverages the business rules established to select and create the most appropriate contract, while reducing risks to an organization
·         Manage insurance, compliance and performance not only at a contract level but also at the supplier/partner/customer levels to offer a holistic view into a given stakeholder and all associated relationships
 
A CLM solution has the capability, out of the box, to proactively manage contracts which require the monitoring of milestones such as renewal dates, and ensure that compliance items are met. A document management system merely has the capability to manage general documents whereas a contract management solution can manage both documents and contracts (which require attention to compliance).
 
While many of the features outlined above may be possible within a DM solution, it will very likely require extensive customization and/or programming, as CLM functionality is not the core competency of a DM solution. This means a much higher total cost of ownership and all the best-of-breed functionality included in a CLM is not available unless it is programmed in by the client.
 
Majority of CLM Customers also use DM
 
DM systems handle the general upkeep of documents in an organization whereas CLM systems handle contract and commitment management; as such, there is room for both systems in an organization, resulting in great collaborative capabilities.
 
Integrate Document Management with Contract Management
 
Document management systems clearly have a place in the enterprise. Customers typically stipulate that all documents ultimately be stored in the DM system, including contracts. As a result, typical integrations include a process where the final signed contract is "shipped" to the DM system for storage and archival management; in addition, the link to this document is also retained in the CLM solution. Therefore, relevant documents pertaining to contracts that are stored in the DM solution have a corresponding link in the CLM solution. This approach extends the value of both systems and allows users in both the DM and the CLM system to see all relevant information for contracts in a secure environment.
 
Conclusion
 
Companies who are seeking solutions to lighten the burden of paperwork and convert to an electronic based system are increasingly turning to document management or contract lifecycle management software. While both types of software have their merits, a contract management solution provides enhanced contract management functionality with vital features such as contract governance, contract creation using model and 3rd party agreements, supplier/customer performance management, rebate/pricing management, risk and compliance management. To remain competitive in today's market, companies must treat the contracts they hold with customers, suppliers and partners as living, breathing papers that deserve proper attention in order to nurture the relationships that form the basis of any business. Finally, there's a reason why the vast majority of organizations who have a DM solution, also have a mature CLM solution - it boils down to contracting excellence (while you could walk 500 miles to get a destination, it may be more efficient and to your competitive advantage to fly).
 
Ashif Mawji  is CEO of Upside Software (www.upsidesoft.com), a leader in Enterprise Contract Management. Ashif – who is based in Edmonton, Canada – is a member of the Contracting Excellence Editorial Board and Upside Software is a long-time supporter of IACCM.
 
 

Spanning Oceans: Introducing The Growing IACCM Team

 
IACCM staff are now firmly entrenched on both sides of the Atlantic. With team members working from 8 different locations and offering increasingly diverse industry experience, our ability to guide and support our community has made major progress in 2008. Training, research, performance benchmarks, best practice studies, advisory services, team or executive presentations - these are just some of our capabilities. We also support many of the top providers to the legal, procurement and contract management community, offering a wide and creative range of marketing opportunities. Learn more about the make-up and background of today's IACCM team.
 
 

IACCM staff are now firmly entrenched on both sides of the Atlantic. With team members working from 8 different locations and offering increasingly diverse industry and functional experience, our ability to guide and support our community has made major progress in 2008. Training, research, performance benchmarks, best practice studies, advisory services, team or executive presentations - these are just some of our capabilities. We also support many of the top providers to the legal, procurement and contract management community, offering a wide and creative range of marketing opportunities and research capabilities. Here we offer more details about the make-up and background of today's IACCM team.

Bob Emery leads IACCM's marketing and membership services, including oversight of the flagship Corporate Member program, and has been at the heart of IACCM's phenomenal growth since 2004. Based in our Ridgefield, Connecticut HQ, Bob has a background in product marketing and international market development, primarily in the technology and services sectors and with many years experience in Asia / Pacific markets.

Katherine Kawamoto heads the research and advisory services, one of IACCM's fastest-growing areas. She also oversees our Corporate Membership program for the provider community and spearheads interfaces with academia. Based in South Carolina, Katherine has experience of both Procurement and Sales Contracting. She led worldwide teams and projects, including for in-house legal groups, and her background includes technology and defense industries.

Paul Mallory is a recent addition to the team and oversees the training, skills assessment and professional accreditation programs. He fulfills this worldwide remit from Abingdon, UK and comes with many years experience as a commercial negotiator on major deals in electronics, telecommunications and outsourcing. Paul was recruited from a major training company, where he led the commercial and contracts practice.

Jim Bergman is based in Moline, Illinois and leads major on-site training engagements, plus fulfilling many IACCM speaking activities. Jim has massive international experience and spends a large amount of time in Asia / Pacific. He has also led a number of IACCM development projects. He is an attorney by background, with in-house legal experience supplemented by extensive experience in sourcing and procurement. Jim has worked in the oil and gas and engineering / automotive industries.

Suzanne Watson has developed the IACCM 'best practice' business process for contracting and commitment excellence. She oversees many of the IACCM Process Maturity Assessments and leads on-site workshops to support process design or re-definition. Located in Florida, Suzanne also brings extensive international experience, having lived and worked in Europe and the US, plus leading worldwide contracts and commercial teams in defense, aerospace, telecoms and outsourcing. 

Mark Heminway oversees member services and has been instrumental in many aspects of IACCM's technology development. He is based in the Ridgefield HQ and brings expertise in project management from a his previous career, most recently in the manufacturing and distribution sector.

Sandra Lewy is based in Bournemouth, UK and is Polish by origin. She joined IACCM in 2008 as a member of the research and advisory team. She has a double masters in manufacturing and logistics from her Polish and UK universities and gained experience in customer services at a major technology company.

Pattabhiraman Paravasthu (Ram) is also part of the research and advisory team. An Indian national, he recently graduated with a masters from the supply chain school at North Carolina State University. Ram interned with IACCM during 2008 and has demonstrated his tremendous talents at research and analytics.

Karen Sereda works in the Ridgefield, CT HQ and fulfills a wide range of association and member support activities. She has been key to the management of member information, maintenance of member details and oversight of our monthly newsletter. Karen joined us in 2007 and brought outstanding experience in office management and accounting.

Nina Carstens is located in Leamington, UK (our European headquarters) and combines business support management with the role of executive assistant to the IACCM CEO. Nina spent many years in South Africa and Australia before coming to the UK in 2008 and has well developed competency in project management and administration.

Katrina Parkin focuses on event management and support, ensuring the smooth running of IACCM's growing portfolio of physical and virtual events and meetings. She is based in Watford, UK and joined us with experience of office and business support in a variety of service industries.

Simon Roberts is IACCM's part-time financial manager. He provides accounting and financial reporting. Simon is a New Zealander by origin and works in the Ridgefield offices. His background is in the financial services industry in New Zealand and the UK.

Tim Cummins Jr. has been the mastermind behind IACCM's website and on-line applications, such as Managed Learning, Certification and Skills Assessment. As the developer of the e-touches application, Tim's work has also resulted in IACCM having access to a leading-edge portfolio of event management and planning tools, plus modules for membership management and marketing and e-surveys. He is based in Slough, UK.

Tim Cummins Sr. is founder and CEO of IACCM. His time today is split between the US and UK offices. Tim's background is in commercial and contract management and negotiation, plus periods in Corporate Marketing and global projects. Prior to IACCM, he worked in the banking, automotive, aerospace and technology / outsourcing sectors.

If you would like to speak with any member of the IACCM team, please e-mail info@iaccm.com or check the directory on the IACCM website. Alternatively you can phone us at (1) 203 431 8741 (US) or (44) (0)1926 420660 (UK).

 
 

Non-compete clauses: An Assessment of their Purpose and Validity

 
In this era of growing concern about IP protection and potential "leakage", non-compete clauses have become increasingly common in employee contracts. Yet for employees, concerns over employment stability understandably make them nervous about the restrictions such clauses imply. Business-to-business contracts also increasingly include non-solicitation and non-hire clauses. This article discusses the origins, validity and effect of such terms.
 
 
By Vidyadhari N

Non-compete clauses: An Assessment of their Purpose and Validity
In this era of growing concern about IP protection and potential ‘leakage’, non-compete clauses have become increasingly common in employee contracts. Yet for employees, concerns over employment stability understandably make them nervous about the restrictions such clauses imply. Business–to-business contracts also increasingly include non-solicitation and non-hire clauses. This article discusses the origins, validity and effect of such terms.
 

A  non-compete clause or covenant is a term under which an employee agrees to not pursue a similar profession or trade in competition, or join a competitor/client in the event of termination of his or her employment for any reason. It is a restrictive covenant, which the employer expects the employee to sign to safeguard its business interests. The use of such clause is based on the apprehension that upon termination or resignation of an employee, he or she might begin working for a competitor or starting a business, and gain or provide competitive advantage by using confidential information about their former employer's operations, trade secrets or sensitive information such as customer/client contacts, business practices, upcoming products, and
marketing plans..
 
Objective of this clause
Whenever an employer brings on board a new employee, the employer provides the person with access to the organization's most valuable assets; its people, its customers and its way of doing business. A company spends huge amounts of its revenue on training its employees, and it is legitimate right of the Company to expect return from its investment on such programs. The company tries to protect itself and its assets from the damage that can result when the employees depart to work for a competing business or set up a competing enterprise. In other words non-compete agreements protect employers from losing valuable trade secrets and employees, confidential information and other sensitive information. This clause is not to be confused with a non-solicit clause. Solicitation literally means to lure or entice. In the context of employment contracts it means that associates who sign up for it have agreed to not entice other associates depending on the facts and circumstances of the case at hand.
 
Non-hire and non-solicit clauses are frequently seen in service agreements (buy & sale side). Accordingly both parties agree not to hire, or entice any employee of the other directly or indirectly to join their respective companies.
 
What is a trade secret?
A trade secret is information that gives a company a competitive advantage because it is not generally known and cannot be readily learned by other people who could benefit from it. It can be a formula, pattern, compilation, program, device, method, technique or process and that you have made reasonable efforts to keep it a secret. To determine whether a piece of information is a trade secret, the following factors are to be examined:
 
          Was the information known outside the organization?
          The value of information and the amount of money and effort spent on it
          The efforts the employer made to limit the number of people having access to such information.
 
Are non-compete clauses enforceable?
The Courts in the developed countries have through case laws over a period of time, developed a position where a non-compete clause can be enforced against an employee, provided:
 
          the employer has a legitimate business interest to protect which requires restricting its employees' right to compete against it;
          the restriction on the employee's right to compete should not be greater than that necessary to protect the employer's business interest; and
          the covenant not to compete is supported by consideration, meaning that the employee received something in exchange (cash or kind) for it.
 
The Courts understand the requirement to enforce such clauses, The enormous competition in the corporate arena has forced the Courts to make certain concessions even against the very fundamental right of every person to choose his employment as it is a reasonable restriction.. The Courts are reluctant in enforcing such restrictive clauses, but if found that the act of the employee joining a competitor/client would effect the very core of the business, would set a bad precedent, leave a negative impact on the company, which might result in the collapse or loss of business, the Courts may be considerate towards the corporate entity, rather than giving importance to the individual's right to employment. The courts normally interpret the non-compete clauses with reference to the following rules:
 
Rule of Reasonableness
A non-compete agreement must be reasonable. Courts recognize that employers have a legitimate business interest in protecting the time, investment, and their other investments in employees, but that interest must be balanced against the restriction imposed on the employee from taking up another job. Courts generally will scrutinize non-compete agreements carefully to make sure that they are used only to protect the reasonable business interests of an employer without unduly limiting an employee's other work opportunities.
 
Therefore, these arrangements are tailored narrowly to restrict truly competitive activities without forbidding an employee from working in the same industry or profession in a way that is not competitive. If the restriction is constructed in a broad way so as to harass the employees, and are violating the fundamental right of a person to employment, the Courts strike down such restrictions as unconstitutional and void.
 
Having a Good Business Reason
Secondly, there has to be a good business reason for the inclusion of this clause in the agreement. Usually, a good business reason will be to protect your trade secrets or a customer base that the company worked long and hard to develop. If the company is selective about the employees who sign non-compete agreements, there are high chances of success, because judges are much more likely to enforce non-compete agreements against employees who truly possess inside information crucial to the company.
 
Independent Consideration
In many countries, a non-compete agreement is valid if entered into at any time after an employment relationship begins. But in some states in the US, courts will not enforce non-compete agreements unless the employee gets what is termed "independent consideration" - i.e. something in exchange for signing such an agreement. If this principle applies in your state / country, a non-compete agreement will be valid only if it is signed at the time employment commences, or at a later date in return for additional benefits such as increase in salary, promotion, company stock or other items of value.
 
Duration
To ensure that these contracts are not unreasonable, courts will generally require that they are valid for a limited period of time. Generally, a duration of one or two years will be valid, and longer time periods may be not be considered valid. In exceptional circumstances courts may permit longer non-compete periods in connection with a sale of a business when a new buyer insists that the old owner refrain from competing for a prescribed period of time. In these situations, courts reason that the parties should be permitted to negotiate whatever time frame they want since the exchange is less coercive than it is in an employer / employee relationship.
 
Distance
In addition to duration, a non-compete agreement often must have reasonable geographic limits. For example, if an employer has a particular market area or a territorial limit within which its service spreads, the courts may refuse to enforce non-compete agreements that extend beyond that limit. Therefore it is essential to put such limit. The non-compete clause can be enforced in all states in USA except in California. The Californian courts have declared such non-compete agreements void – which is interesting, given the state’s reputation as a powerhouse of innovation.
 
Employers while hiring
Most of the companies world-wide are applying this system of non-compete agreement to protect their business interests and prevent their valuable human resource from leaving the company. Employers who lose an employee to a competitor in violation of a non-compete agreement can sue the employee, and in some states even new employer (which is very rare). The new employer has to be vigilant while hiring new employees, lest they may be hiring an employee who is violating the non-compete agreement signed by him with his ex-employer.
 
Hiring such employees may become a hassle, since there is always an apprehension that the ex-employer may initiate a legal action against such employee, and the new employer may also be made a party to such with previous employers. Moreover, no company would want to waste its time and energy into hiring an employee with impending litigation, which might result in limited or no productivity of such employee in the organization. The best approach for employees in such situations is to let their prospective new employer know about the non-compete provision. The employers, on the other hand may consult their in-house legal counsel to advise on the enforceability of such clauses in various geographies and to assist the decision whether to hire such an employee or not.
 
The author is an attorney at Satyam and this article is reproduced from Legale Communique, the company’s in-house newsletter. This article does not constitute legal advice and should be used for information only.
 
 
 

IACCM Intern Makes The Grade!

 
IACCM intern Pattabhiraman Paravasthu (Ram) last month graduated with his Masters in Integrated Manufacturing and Supply chain from North Carolina State University. Ram has been a valued member of the IACCM research and advisory team, working closely with double masters graduate Sandra Lewy and under the leadership of Katherine Kawamoto. We are delighted that he has resisted a number of alluring job offers and elected to remain with IACCM, joining our Research & Advisory team full time.
 
 

Pattabhiraman Paravasthu (far left of picture) celebrates with fellow graduates

IACCM intern Pattabhiraman Paravasthu (Ram) last month graduated with his Masters in Integrated Manufacturing and Supply chain from North Carolina State University. Ram has been a valued member of the IACCM research and advisory team, working closely with double masters graduate Sandra Lewy and under the leadership of Katherine Kawamoto. We are delighted that he has resisted a number of alluring job offers and elected to remain with IACCM, joining our Research & Advisory team full time.

 
 

 


 
 
 
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