Protecting strategic information is essential to maintaining a competitive edge.
The non-compete clause emerges as a powerful tool to prevent internal talent from becoming unexpected competitors.
Frequently applied not only to employees but also to partners and service providers, its correct implementation can be the difference between keeping business secrets secure or exposed. However, it is vital to structure the clause correctly to prevent future judicial decisions from invalidating it considering Brazilian Court precedents.
For this, we highlight four essential points for drafting and limiting the clause’s obligations in Brazil:
1. Objective: It’s crucial to understand that the clause’s objective is to prevent a partner or service provider, after the relationship ends, from working for competitors or creating competing businesses by using information that could harm your company. Ensure that the current contract does not contain permissions that could contradict the non-compete in the future.
2. Company’s Option: The clause should state that the company has the option to enforce the non-compete, rather than it being a mandatory requirement. This is important to avoid unnecessary costs, such as in cases involving minority partners or service providers who have become irrelevant to the business.
3. Timeframes, Territorial Limits, and Scope of Activity: Establish clear timeframes, geographical boundaries, and areas of activity. An excessively generic or subjective clause can be invalidated. Instead of an overreaching limitation, you risk having it declared void.
4. Financial Compensation: This is a critical point in Brazilian courts. The clause limits professional activity; therefore, adequate financial compensation is essential for its enforcement. This is the prevailing view in the courts, and the compensation percentage varies on a case-by-case basis.
The inclusion of a non-compete clause in Brazil goes beyond a contractual detail; it is a fundamental protection against the loss of valuable knowledge. Using this strategy is not just a preventive measure, but a decisive step to strengthen the company and prepare it for future challenges. This makes the clause one of the essential items in a Shareholders’ Agreement or a Service Agreement.
