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Today, Restraint of Trade Clauses (CRCs) are often part of employment contracts and cover a wide range of industries. Typically, such clauses state that workers cannot be hired by a company in the same industry after leaving their job, or if they return to work for another company in the same industry, they cannot contact that company’s clients.
The purpose of the CRC is to protect the business interests of employers and prevent employees from competing with them after they leave their jobs. However, this inevitably restricts job search freedom and labor market competitiveness. What business interests do employers need to protect? Why should workers still be subject to restrictions after they leave their jobs? These questions make the CRC controversial.
Recently, the U.S. International Trade Commission (FTC) announced that it will make major adjustments to the CRC. As an independent agency of the U.S. government that enforces antitrust laws and promotes consumer protection, the FTC’s position will undoubtedly have a profound impact on the U.S. job market.
On April 23, the United States approved a new law that prohibits restrictive clauses in employment contracts, including those that were in effect before the new law. The only exception applies to people with an annual salary of more than $151,164.
Obviously, it is the top executives of companies who receive salaries of this value. The new law guarantees a dynamic and competitive labor market while ensuring additional protection for business interests, taking into account confidential business information that executives have access to due to their special status.
There are similar restrictive clauses in the Macau Commercial Code, but they point in completely different directions. The US CRC revised law defines the scope of application of the clause through an annual salary threshold, while the Macau Commercial Code focuses more on specific restrictions on the category of “managers”.
Articles 64 and 77 of the Macau Commercial Code simply divide company workers into two categories: “managers” and “auxiliary personnel.” Article 71, paragraph 1, provides that “managers” may not engage in work in the same field of activity during their term of office, whether in their own business or for a third party, without the express consent of the appointee.
However, the Macau Commercial Code does not have any restrictions on “auxiliary personnel”. The provisions of Article 71, paragraph 1, are clearly intended to protect the interests of employers and prevent “managers” from managing similar businesses in a way that avoids conflicts of interest.
It is important to emphasize that, although the Macau Commercial Code has anti-competitive clauses for in-service “managers”, it does not provide for this issue after the contractual relationship ends. Therefore, in Macau, if employers want their businesses to be more protected, they can consider combining the U.S. Employment Relationship Convention with Article 71, paragraph 1, to regulate the attitude of relevant employees after the termination of the employment contract.
What employer interests can be protected by combining the US CRC with Article 71 of the Macau Commercial Code? Let’s take the Coca-Cola Company as an example. Assuming that the worker has learned the secret of the beverage formula while working for the company, Article 71, paragraph 1 of the Macau Commercial Code prohibits employees from starting their own business or starting a business on behalf of others within the scope of their work.
They are required to work in the same field of activity during the term of their employment contract to prevent conflicts of interest. When this contract expires, the USCRC can extend this restriction to prevent them from working for other companies in the same industry, thus fully protecting the interests of Coca-Cola.
Combining the US CRC with Article 71 of the Macau Commercial Code may further help companies deal with the possibility of losing customers after employees leave. Because in the course of performing their duties, employees develop close relationships with customers, which allows them to take some of their usual customers with them when they leave the company. To prevent this from happening, companies can introduce restrictive clauses in employment contracts that prohibit employees from conducting business activities within the same branch, for a certain period of time after leaving the company, or prohibit former employees from using the contact information of their former employers. Build a database for personal interests to prevent companies from losing customers.
However, the CRC is not perfect. While it can provide a degree of protection for employers, it cannot prohibit a client from ending their relationship with a company and starting a business relationship with the company where the former employee began working. If this happens, the company will lose some clients.
CRC is a highly controversial clause. If the balance is not struck, there are many possibilities for the employer to benefit. Therefore, restrictions on resigned employees must be reasonable and cannot be imposed for a long time. In any case, if a restriction clause is included in the employment contract, the worker must accept that conflicts and legal proceedings are inevitable when the relationship with the company ends, despite the controversy. Violation of these clauses occurs.
Therefore, the most reasonable approach is to seek a balance between the interests of employers and employees. An employment contract with a restrictive clause must contain an additional clause to compensate employees. In other words, the introduction of the CRC not only protects the interests of the company, but also limits the scope of activities that former employees can engage in after leaving, so they deserve compensation from their former bosses. If there is a restrictive clause in the employment contract, the employee cannot work in the same department or contact the clients of the former employer within six months after leaving. Then, the former boss must pay an additional amount equivalent to six months’ salary as compensation; or pay him the amount previously agreed with the employee. In this sense, both the employer and the employee can feel satisfied and feel that the final result is fair.
Legal Advisor of Macau Jazz Promotion Association
Associate Professor, Faculty of Management Science, Macau Polytechnic University
Blog: http://blog.xuite.net/legalpublications/hkblog
Email: legalpublicationsreaders@yahoo.com.hk
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