As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Gilles Rouvier, founding partner of Lawways

Context

On July 31st, 2018, France adopted a law on trade secret protection, loi n°2018-670 (hereafter “French Trade Secret Law“). The aim of this French Trade Secret Law is to offer companies protection for their economic and strategic information. This legislation implements the Directive 2016/943/EU on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use, and disclosure, enacted by the European Parliament and the Council of the European Union (EU) on June 8th, 2016. Continue Reading New Trade Secrets Law for France

shutterstock_183065225We are pleased to announce the webinar “International Trade Secret and Non-Compete Law Update” is now available as a podcast and webinar recording.

In Seyfarth’s third installment of its 2015 Trade Secrets Webinar series, Seyfarth attorneys focused on non-compete and trade secret considerations from an international perspective. Specifically, the webinar will involved a discussion of non-compete and trade secret issues in Europe and China compared to the United States. This webinar provided valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries to ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements

As a conclusion to this well-received webinar, we compiled a list of key takeaway points, which are listed below.

International…local law compliance is key

One size does not fit all! Requirements for enforceable restrictive covenants vary dramatically from jurisdiction to jurisdiction. However, there are some common requirements and issues regarding enforceability based on the region (e.g. in Europe, see below). Bearing in mind non-compete covenants across the world may be unlawful in certain countries or heavily restricted, employers should carefully tailor agreements to satisfy local legal requirements and appropriately apply local drafting nuances to aid enforceability of any restrictive covenants.

The general approach to restrictive covenants in Europe, is that the restrictions should not go further than is reasonably necessary to protect the employer’s legitimate business interests. This restrictive approach is a continuing trend across Europe. For example, there is a recent prohibition in the Netherlands on non-compete clauses in fixed-term contract unless justified by the special interests of the company. In practice, this means that employers should particularly focus on the duration and scope (in terms of geographical coverage and the employee’s own personal activities) of the restrictions and be mindful of any local payment obligations when preparing restrictive covenants (e.g. in France and Germany). Europe is also making an attempt to remedy the uneven levels of protection and remedies in relation to trade secrets. The draft EU Directive for trade secret protection is currently making its way through the legislative process with no firm timeline for adoption.

In addition to local or regional nuances, employers should take advantage of other contractual and/or tactical mechanisms as a “belt-and braces” approach, such as, claw-backs and forfeiture of deferred compensation (where permitted), use of garden leave provisions, and strategic use of forum selection and choice-of-law provisions. Employers operating in the U.S. should also consider strategic use of mandatory forum selection and choice-of-law provisions in restrictive covenant agreements with U.S.-based employees.

Practical measures should also be taken to protect confidential information and trade secrets, including limiting access to sensitive information, using exit interviews, and (provided that applicable privacy laws are followed) monitoring use of company IT resources and conducting forensic investigations of departing employees’ computer devices.

France…do not miss the deadline

Drafting a non-compete clause under French labor law requires specific care as Courts are particularly critical of the following: duration, the geographical and activities scope, the conditions in which the employer releases the employee from such obligation, the employee’s role, the interests of the company and the financial compensation provided by the clause.

Recent case law shows that French Courts are strict when it comes to the interpretation of the non-compete clauses and the possibility to waive the non-compete clause. If an employer misses the relevant contractual deadline to release an employee from their non-compete, the financial compensation will be due for the entire period. Similarly, if the employer waives the non-compete prematurely, the Courts will consider the waiver as invalid.

During employment an employee is subject to a general obligation of confidentiality and breach may be subject to civil and criminal sanctions. Only “trade secrets”, however, are protected post-termination under certain circumstances. Employers should therefore automatically include a confidentiality clause in employment agreements to strengthen the protection of the company’s data post-termination. Good news for employers, the French High Court recently confirmed that, unlike non-compete covenants, a confidentiality clause does not require any financial compensation.

United Kingdom…less is NOT more

Restrictive covenants are potentially void as an unlawful restraint of trade! In practical terms, this means that such covenants are only likely to be enforceable where they are fairly short in duration, the restriction is narrowly focused on the employee’s own personal activities (e.g. by geographical scope) and is specific to the commercial environment. Unlike in some European jurisdictions, payment will not ‘rescue’ an unenforceable restriction. In addition, the English Courts tend to have an unforgiving nature when it comes to poor drafting even if the intention of the parties is obvious. Employers should therefore also consider other creative and acceptable ways to aid enforceability, such as, deferring remuneration and varying and reaffirming covenants.

Absent any agreement, only “trade secrets”, which is narrowly defined, will be protected after employment. Employers should therefore ensure that employment contracts and/or other free-standing binding agreements provide full coverage for the protection of confidential and other valuable business information post-termination. Often the physical protection of confidential information is underestimated (e.g. encrypting data, installing passwords, secure storage, etc.), which can be a more effective and a less costly approach for employers in the long-term. Employers should therefore also seek to retain physical control of such information in order to reduce and limit unwanted disclosure and misuse.

China …. stay atop an evolving regulatory system

In China, employers should ensure that they have a non-compete agreement with the employee at the time of employment, so that the employer can decide whether to enforce or not to enforce the non-compete agreement for a period of post-employment.

In addition, employers should ensure that documents are marked with ‘confidential’, or that other measures are taken to protect confidential information.  Otherwise, remedies may not be available under the Chinese law for breach of confidential obligations.  Employers should also review and update rules and policies regarding confidentiality and security arrangements. Pre-employment vetting of R&D staff is also essential to prevent unexpected breach or non-compliance with trade secret and IP rights.

As a notable (and relatively recent) development, Injunctive relief for trade secret infringement is available in Shanghai and Anhui.

WebinarTo accommodate our global audience, the third installment in the 2015 Trade Secrets Webinar Series will be available as an on-demand broadcast on Tuesday, April 14, 2015 at 9:00 a.m. Central.

Seyfarth attorneys Wan Li, Ming Henderson and Daniel Hart will focus on non-compete and trade secret considerations from an international perspective. Specifically, the webinar will involve a discussion of non-compete and trade secret issues in Europe and China compared to the United States. This webinar will provide valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries to ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements.

Summary of Topics:

  • Overview of key rules for non-compete and non-disclosure agreements in Europe
  • Key principles of non-compete and non-disclosure agreements in the United Kingdom and France, including recent case developments
  • Latest developments in non-compete and trade secret law in China
  • The European Commission’s proposed directive on trade secrets protection throughout the European Union
  • Practical considerations under U.S. law for multinational employers to effectively protect their trade secrets and confidential information

If you have any questions, please contact events@seyfarth.com.

*CLE: CLE Credit for this webinar has been awarded in the following states: CA, IL and NY. CLE Credit is pending for the following states: GA, NJ, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

As many readers will know, non-compete clauses in employment contracts are only valid in France if, among other conditions, an employee receives a financial consideration of 40 to 60% salary depending on the sector and the role for the duration of the restriction. But do confidentiality clauses need to be subject to the same treatment?

The recently published decision of the High Court (SNC Adex v/ MD dated 15 October 2014) confirming that a confidentiality clause does not require any financial compensation will be met with a sigh of relief by employers employing staff in France.

“A confidentiality clause does not prevent an employee from finding another job”

This decision, though not entirely surprising, is important firstly because rulings by the High court on confidentiality clauses are rare and can be quoted by employers as authority for cases before other courts. Secondly, the circumstances of the employee were particularly interesting: the employee had argued that following his redundancy as Marketing Director (industrial explosive division), the confidentiality clause in his employment contract effectively prevented him from finding another role because he had always worked in the same niche sector where his skills are rare.  He also claimed the confidentiality clause was particularly restrictive as it was neither limited in time nor geographical scope.  All these circumstances, the employee argued, meant he was prevented from working for a competitor, and therefore in the same way that a non-compete clause operates, the contractual restrictions imposed on him should only be enforceable if he received an adequate financial compensation.

Not so. The high court disagreed with the employee’s reasoning and declared that the clause did not prevent the employee from finding another job, it just imposed on the employee a duty to keep confidential the restricted information he held regarding the company.

Key Takeaways – Confidentiality clauses are a must have

The decision of the High court is good news for employers, particularly given the facts at stake.  Employers should therefore be encouraged to include a robust confidentiality clause in the employee’s contract in France and ensure the confidentiality obligations are reconfirmed at the time of termination. Even though there is an implied duty to keep information confidential during the employment contract, this duty falls when the employment contract expires, and the confidentiality clause which needs to be expressly agreed by the employee prior to the termination will be helpful to protect the employers interests when parting with the employee.

Currently only non-compete clauses are subject to a financial compensation in an employment contract.  It will be interesting to see whether, like confidentiality clauses,  non-solicitation clauses that apply post termination also continue to be exempt from any financial compensation.

The French Answer to Flexible Working

Ever since the first laws on the 35-hour week were enacted over fifteen years ago, monitoring working time has been a headache for employers in France. With the introduction of new technology and mobile devices, the situation has worsened. The French approach to flexible working is to reaffirm that employees have the right to privacy and in some sectors the obligation to disconnect, as recently shown by the CNIL, the French Data Privacy Watchdog and the SYNTEC Federation.

SYNTEC Agreement:  An obligation for employees to disconnect

SYNTEC, the National Federation covering many employers in the IT sector and consultancy firms, recently signed a new collective bargaining agreement on working time limiting work after business hours, due to concerns expressed by Unions about employees’ work overload and burn-outs.  Rather than a new law banning work after 6pm as was incorrectly reported in several newspapers, effective 4 January 2015, the agreement (which has been extended by law to all employees in this sector, one of the biggest in France) will impose on employees not just a right but an actual obligation to disconnect during daily and weekly rests. Employers will, for their part, be required to carefully manage employee workloads so that minimum rest times can effectively be taken.   There is not an opt-out process for employees in the relevant job categories.

CNIL’s first official opinion on BYOD

The CNIL’s main duties are to inform individuals and corporations about their data privacy rights and obligations, as well as to provide guidelines and regulations on data privacy issues, but it may also impose financial penalties of up to 150,000 Euros per breach.

Where the so-called Bring Your Own Device or BYOD practice exists, employees have access to their professional emails, and the company’s data from their mobile phone, personal laptop or tablet. The CNIL, recently published its first official opinion on such practice in its latest newsletter . Rather than fighting it back, the CNIL embraces BYOD but emphasises the need to find a balance between the company’s data confidentiality and the protection of the employee’s privacy.

To ensure company held data and confidential information are secure, the CNIL recommends companies adopt certain good practices such as: (1) installing software (MDM-Mobile Device Management and MAM-Mobile Application Management for example) that enables employers to encrypt devices and remotely destroy data on employees’ devices if needed, (2) classifying data and better managing access rights, (3) storing employees’ personal or private data separately from company data, and (4) finally, adopting an IT policy which defines the company’s internal compliance rules.

The CNIL acknowledges that  BYOD bears some risks but these are not dissimilar to issues raised by homeworking employees for which there is specific regulation, particularly on costs and working time.  Similar to homeworking rules, employer monitoring of employees’ devices must not interfere with their right to privacy and must not become a tool to control the employee’s activity.

Takeaways

CNIL’s implicit approval is good news but employers should ensure the practical recommendations, particularly around monitoring and the right to privacy, are effectively implemented to avoid employee claims, Health and Safety Issues and the intervention of the CNIL.

BYOD also raises many other legal issues not addressed by the CNIL or in the recent SYNTEC agreement, in particular:

  • Are mobile devices working tools or personal items? This question is relevant for payroll tax purposes for example and to assess how data is recovered at the end of the employment;
  • Is the company at risk for not consulting with the Works Council or the Health and Safety Committee before implementing a BYOD practice?
  • How can working time effectively be measured due to the blurred lines between working and non-working times and how far should monitoring of working hours go?

It may be appropriate to include the CNIL’s recommendations and to have clear policies in the company Internal Rules (“Règlement Intérieur”), to ensure employees meet their obligations and that a right balance is found so business needs can be met.

We are pleased to announce the webinar “International Trade Secrets and Non-Compete Law Update,” is now available as a podcast and webinar recording.

The fifth webinar in the 2014 series, was presented by Wan Li, Ming Henderson, Justine Turnbull and Daniel Hart, focused on non-compete and trade secret considerations from an international perspective. Specifically, the webinar involved a discussion of non-compete and trade secret issues in Europe, Australia, and China compared to the United States. This 90-minute webinar provided valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries and ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements.

As a conclusion to this well-received webinar, we compiled a list of key takeaway points, which are listed below.

International

One size does not fit all.  Requirements for enforceable restrictive covenants vary dramatically from jurisdiction to jurisdiction.  Bearing in mind non-compete covenants may be unlawful in certain countries or heavily restricted, employers should carefully tailor agreements to satisfy local legal requirements and appropriately apply local drafting nuances to aid enforceability of any restrictive covenants .  In addition, employers should take advantage of other contractual and/or tactical mechanisms as a “belt-and braces” approach , such as, clawbacks and forfeiture of deferred compensation (where permitted), use of garden leave provisions, exclusivity and strategic use of forum selection and choice-of-law provisions.

Employers should also take practical measures to protect their confidential information and trade secrets, including limiting access to sensitive information, using exit interviews, and (provided that applicable privacy laws are followed) monitoring use of company IT resources and conducting forensic investigations of departing employees’ computer devices.

France

Drafting a non-compete clause under French labour law requires specific care as Courts are particularly critical of the following: duration, the geographical and activities scope, the employee’s role, the interests of the company and the financial compensation provided by the clause.  Case law and the applicable collective bargaining agreement may also provide minima to comply with and employers should be mindful of these.  

During employment an employee is subject to a general obligation of confidentiality and breach may be subject to civil and criminal sanctions. Only “trade secrets”, however, are protected post-termination under certain circumstances. Employers should therefore enter into a confidentiality agreement to strengthen the protection of the company’s data post-termination.

UK

Restrictive covenants are potentially void as an unlawful restraint of trade and are therefore only enforceable if they go no further than is necessary to protect legitimate business interests. In practical terms, this means that such covenants are only likely to be enforceable where they are fairly short in duration, the restriction is narrowly focused on the employee’s own personal activities (e.g. geographical scope) and is specific to the commercial environment. Careful drafting is key especially given the unforgiving nature of the English Courts when it comes to poor drafting even if the intention of the parties is obvious. Employers should also consider other creative and acceptable ways to aid enforceability, such as, deferring remuneration and varying and reaffirming covenants.

Absent any agreement, only “trade secrets” will be protected after employment. Employers should therefore ensure that employment contracts and/or other free-standing binding agreements provide full coverage for the protection of confidential and other valuable business information post-termination. In addition, employers should also physically protect their confidential information  (e.g. encrypting data, installing passwords, secure storage, etc.) and seek to retain control of it to reduce and limit unwanted disclosure and misuse. Physical security can be a more effective and less costly approach in the long-term. 

Australia

It is possible to protect an organization’s confidential information, customer or client connections, trade secrets and other proprietary interests from inappropriate use by former employees in Australia. To do this detailed consideration is required of the employee’s role and responsibilities and we as their personal situation. Further, protection must not only be included in the written terms of employment but also employed at a very practical level in the business, for example, by password protecting documents, limiting access to confidential information to those who ‘need to know’ and by expressly reminding employees in different forms about the importance of certain information and relationships to the business and their related obligations.