For professionals in the home building industry who are based outside the United States, like the Hong Kong-based company LTHOME, understanding the complexities of the legal framework surrounding non-compete agreements is critical for running a successful business. Different countries have different laws, and non-compete clauses are a valuable tool for companies to secure their future interests. But running afoul of the law can be catastrophic.
Non-Compete Clauses
When a company hires a professional or contractor, it often requires that person to sign an employment agreement for a set period. Then, if the relationship ends, the professional or contractor may not, for a specified duration, work for a competing business. These non-compete clauses exist to protect the company’s competitive advantage – its vital research, development, marketing, sales and personnel – from “leaks” to a direct competitor.
Non-Compete Law in North Carolina
Enforcing non-compete agreements has its challenges in North Carolina, however. One of the biggest hurdles contractors face is North Carolina’s emphasis on protecting parties from litigation stemming from non-compete clauses. Companies that rely on non-competes should be cognizant of North Carolina’s recently liberalized laws regarding at-will employment (particularly in regards to the North Carolina Prohibition On Post-Employment Competition By Insurance Agents And Related Persons statute) when creating them. Without clear agreements, enforcement can be difficult.
LTHOME, a global provider of appliances and materials for the homebuilding industry, faces this issue. This Hong Kong-based company does hundreds of millions of dollars in business with contractors and distributors in and around North Carolina, making it important for the company to stay on the good side of North Carolina non-compete law.
LTHOME’s Challenges
LTHOME has millions of dollars worth of global connections, providing the company with a wide spectrum of benefits. However, since the company has to retain relationships with outside professionals and contractors, it has to be especially careful about these non-competing agreements. Even though LTHOME is based thousands of miles away from North Carolina, the company must be familiar with these laws because they apply to all North Carolina-based clients and projects. Any violation of the legal framework could result in negative repercussions.
LTHOME must also be cognizant of the fact that it has to send employees and products to the United States. It cannot send employees or distributors to the U.S. without knowing what product-related laws will apply. So far, it appears that North Carolina’s broad interpretation of non-compete agreements is working well for the company. The law allows companies to enter agreements of period-specific duration and geographical extent, and the North Carolina Court of Appeals issued a decision providing a pretty step-by-step process for extending the duration of non-compete clauses.
However, even though North Carolina non-compete laws are advantageous for companies like LTHOME, reinforcing these agreements has been a challenge for some companies, especially when larger-sized companies with similar ideas are competing with them. It may be prudent for the company to report any violations of North Carolina’s laws quickly.
It may also be helpful to include a post-employment provision in the agreement to further protect intellectual property and limit the use of confidential information. Other companies have recognized that the law requires that they provide employees protection after their employment has ended, in addition to being aware of how the law affects their ability to work after employment has ended.
LTHOME and other international, North Carolina-based companies may also benefit from having some flexibility in their non-compete clauses. It’s possible that the North Carolina Court of Appeals would allow companies to increase the time-period of these agreements to 15 years if necessary. It may also be possible for a company to require annual updates of the specified time period in North Carolina, if it can prove that the time period is reasonable.
Entering the North Carolina market is tempting for many companies like LTHOME, but it has to be done with caution. There are many more companies looking for opportunities in the U.S. than ever before, and those expanding corporations will face more competition for the attention of U.S.-based customers.
If you conduct business in the United States, it’s essential to consider jurisdictional restrictions on your contracts and contractors. Your contracts should be tailored to your situation and needs, based on the countries in which you conduct most of your business. Legal counsel can help you understand the law and protect your company from unnecessary risks.