“Can a non-compete agreement require that New York law applies even if the company is not in New York?”
Published on March 28th, 2012 by Alan L Sklover
Question: Can the company I work for have a letter of non-compete based on the law of the State of New York even though they have no office in that state? Can this non-compete apply overseas?
Jeddah, Saudi Arabia
Answer: Dear Jum: As you are probably aware, I am not licensed to practice law in Saudi Arabia, but only in New York, in the U.S. However, I have done a bit of research on Saudi Arabian employment law on the internet in preparation for this answer. This is what I have found:
1. In general, employers and employees are free to agree that a certain law will be used to interpret and enforce their agreements. Non-compete agreements are a kind of contract. Most legal systems in various states and countries respect the right of people to enter into contracts if they wish, and part of that right is the right to choose which law will apply to the interpretation and enforcement of those contracts. It is something like deciding the rules of a game before playing the game. It does not matter that the employer has no office in the state or country in question.
2. Many employers insert “New York law will apply” into their agreements because New York law is very business-oriented, and willing to enforce non-compete agreements. New York law is chosen by many employers for their agreements, including their non-compete agreements, because New York law is very “business-oriented” and “employer-friendly.” New York law also reflects the composition of New York and its culture: very understanding of diverse cultures and perspectives, and very commerce-friendly. And, too, so many large businesses and organizations have some presence in New York.
3. However, courts in some states and countries sometimes refuse to abide by such “choice-of-law” provisions in contracts. In the U.S., California is widely known as a state where the Courts will, with few exceptions, simply refuse to enforce a non-compete agreement, even if the agreement says New York law will govern and control. This is because California has a strong public policy in favor of freedom in employment.
4. Saudi Arabian Courts will not use any other law but Shariah Islamic law to interpret and enforce contracts in that country. The Kingdom of Saudi Arabia follows Shariah law, whereby all agreements must be made in accordance with the principles of Islamic law. Shariah accepts the general principle of the freedom of contract, and will enforce a contract – including a non-compete – but only if it adheres to Islamic law.
The four basic principles of Shariah Islamic law as they apply to business affairs are as follows: (a) Honesty and Fair Trade (so that one party manipulating or overpowering the other party will invalidate an agreement); (b) Full Disclosure (so that both parties to an agreement must disclose all faults or shortcomings to the other); (c) Avoidance of Misrepresentations (prohibiting false representations of fact or intent); and (d) Avoidance of Gharar, or Deceit (including both outright fraud and errors of judgment, and requiring clear detail on each material point).
In Saudi Arabia, a non-compete agreement that says New York law will govern its interpretation and enforcement will be enforced, but not according to New York law, but instead under the principles of Shariah law.
If you have any interest in obtaining our popular “185-Point Guide and Checklist for Non-Competes,” simply [click here].
So, Jum, an employer can insist on a non-compete letter that includes a “New York Law” provision, but the Courts of a state or country where the employee works can refuse to accept that portion of the non-compete agreement, and judge the non-compete by its own standards.
I hope this is of assistance to you. Thanks for writing in from Jeddah, Saudi Arabia. I hope you will tell your colleagues of our blogsite, and what it offers employees, worldwide.
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© 2012 Alan L. Sklover, All Rights Reserved.