Reference no: EM133588628
Value Partners, headquartered in Milan, Italy, and recognized as one of the major European management consulting firms with clients in 40 countries and offices in 15 cities, was founded in 1993 by former partners of the Italian offices of McKinsey & Company. They opened their first overseas offices in São Paulo, Brazil, and Buenos Aires, Argentina, in 1994. By the end of 1997, its São Paulo office had 20 employees producing annual revenues of about
US $5 million, assisting both Italian clients and local companies.
Rival Bain & Company, a major management consultancy, was founded in 1973 by seven former partners from the Boston Consulting Group and is headquartered in Boston. Bain established its São Paulo office in October 1997 and by early November had hired away almost all of Value Partners' staff.
Value Partners filed criminal charges in Brazil and New York against Bain, alleging breach of trust and loyalty of its former employees (pirated away by Bain) and theft of confidential and proprietary information. The New York court ruled that the case would be more conveniently and efficiently dealt with in Brazil under the doctrine that New York was not the most convenient place to hear the case. Unfortunately for Value Partners, Brazilian law offered none of the US's significant compensatory and punitive damages for employee disloyalty and theft of intellectual property. However, the New York federal court also made it clear that Value Partners was permitted to re-file the lawsuit against Bain in a more convenient forum.
So, Value Partners re-filed the case in Boston, the site of Bain headquarters. After a five-week trial, the jury found Bain & Company liable for unfair competition and tortuous interference and awarded Value Partners US $10 million in compensatory damages (the full award sought). The trial court, after awarding another US $2.5 million of interest, denied all Bain's post-trial motions.
As labor markets become global and firms develop new forms of relations with workers in foreign locales (such as IT workers or call centers in overseas locations), it becomes increasingly difficult to control the movement of workers from one employer to another and their taking of intellectual property (such as product or process technology or customer lists and preferences) from their current employer to their new one. Because the rules (and cultures) are so different from one country to another, it becomes very difficult to enforce any non-compete agreements in employment contracts.
This situation shows how difficult it can be to enforce covenants, like non-compete agreements, particularly in situations involving firms from outside countries. The more reasonable a restrictive covenant is, the more likely it is that courts worldwide will enforce it. But in some jurisdictions, such as in Latin America and the US state of California, non-compete clauses in employment contracts are considered illegal. Nevertheless, generally speaking, the shorter the time period of the restraint and the more narrowly defined the people covered, the more likely it is to be enforced across borders.
1. Should employees be free to move at will from employer to employer? Should there be any constraints on this freedom of movement? Should employers be free to "pirate" employees from competitors?
2. What can HR do to minimize the impact of this sort of employee mobility?
3. Have the web and the Internet (and social media) changed the importance of intellectual property? Have they changed the view of legal systems and cultures in various countries? How are they changing?