Clients, Executive Search

The Use of Non-Compete Agreements (NCAs) For European Subsidiaries Hiring Executives In The US

Many European companies are familiar with the NCA: a provision that purports to prevent an employee from working for a competitor after employment with a current employer. But while the US is preparing to potentially do away with NCAs, most European countries embrace them (provided employees receive payment during a small limitation period).

Differing cultural views regarding the use of the NCA may create some friction when hiring executives in the US. This is especially true for those meant to lead subsidiaries abroad, as their parent companies may not feel comfortable hiring an executive without an NCA.

Understanding the use case for the NCA is pivotal for selecting good executive talent. It’s also a necessity for navigating US expectations for C-suite roles.

Why Would Your Subsidiary Need an NCA?

Non-compete agreements are used for exactly that: to prevent competition once employees leave your brand. Unlike documents designed to protect trade secrets or internal information, the NCA seeks to protect employers from workers who may use their experience with the company against it.

Would your European subsidiary need an NCA for executives? To start, consider this example:

A French tech firm has recently opened several subsidiaries throughout the US as part of its global expansion plans. To ensure the success of its new branches, it decided to hire executives from the US instead of bringing in employees from headquarters. When searching for candidates with the right skill set and industry knowledge, the company realizes many of them have already worked for local competitors. Without an NCA, these executives could go back to their previous employer and share trade secrets or client information, potentially harming the subsidiary.

In this scenario, having NCAs in place for executives could provide a layer of protection for the France-based company. It could also help reassure parent companies that their subsidiaries are not at risk when recruiting local talent for European subsidiaries in the US.

However, NCAs do not always make sense in every circumstance. For example, if the candidate is not in a position to access sensitive information or make decisions that could impact company performance, an NCA may be unnecessary.

The NCA has its benefits and drawbacks. On the one hand, it can assure potential competition from former employees. This can help maintain market share and protect trade secrets. On the other hand, NCAs have been criticized for limiting employee mobility and stifling innovation. In some cases, they may also create a barrier for employees seeking new job opportunities.

Current NCA Trends in the US

Four US states (California, Minnesota, North Dakota, and Oklahoma) have outlawed NCA agreements entirely. Many other states — 29 to be exact — have strict regulations on how you can present NCAs to employees.

There are several other US trends to keep in mind:

NCAs are Becoming Less Popular

Top talent may be leery of signing a noncompete agreement, which may prevent them from accepting your final offer. There’s also a good chance they turn to a competitor offering a similar package without an NCA. Since getting rid of NCAs nationwide would increase earnings by as much as 13.9%, it may be difficult to find an executive-level employee interested in supporting such an agreement.

NCAs are Difficult to Enforce in the US

Different states currently have different levels of enforcement for NCAs. As you’ve learned, some prohibit their use entirely, while others allow their use completely. This means it may be difficult to enforce your contract across state lines (and potentially multiple countries).

NCAs May Be Outlawed by 2024

The Federal Trade Commission (FTC) has proposed a bill to outlaw all NCAs in the US. The final ruling would take effect in approximately April of 2024, although this timeline is not set in stone. You may need to opt for a nondisclosure or non-solicitation agreement depending on your company and the nature of your industry.

Navigate US Hiring Laws With DSML Executive Search

US hiring laws around non-compete agreements are very different from what exists in European countries. It’s essential for companies to carefully evaluate their needs before incorporating NCAs into their employment contracts. However, the rule of thumb remains the same: you must make the best decision for your business, industry, and role requirements.

The experts at DSML Executive Search, an executive search firm in Boston and Chicago, recommend our clients weigh the pros and cons and receive legal advice from lawyers who understand the local landscape. If a company decides to implement an NCA, it needs to be enforceable. From advising companies on competitive compensation packages to ensuring compliance with local regulations, our team can help you make informed decisions about executive hires and build a strong, effective team for your subsidiary in the US.

You may contact the team at DSML Executive Search for your executive search recruitment needs from our offices in Boston and Chicago by calling +1 312 268 6166 today. You can also submit an online contact form to learn more about how we can help your subsidiary choose the best possible talent in the American market — with or without non-compete agreements.

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