[Urgent] PE Associate Non-Compete Clause

I've just received an offer to join a multi-billion PE shop headquartered in Hong Kong.

Everything looks fine except a non-compete clause which essentially restricts me to work in any position that manages third party capital (so includes HF, Asset Management etc.) in Hong Kong, China and South East Asia for 12 month.

Three things I'm trying to figure out are:

1) Given how junior I am (most junior in firm) would it be uncommon to have a non-compete that long
2) Why would the non-compete include other asset management roles in addition to PE
3) They did not specify in the contract that they will be paying me anything during the non-compete period. Does such agreements usually specify the payment and amount paid in the contract?

They gave me a 24 hr exploding offer which is why it become kind of urgent.

I'm currently in new york and moving to Asia is a big move, which is why I'd rather not take the job if I have to swallow the non-compete

Thank you

Comments (51)

 
Jul 5, 2015 - 12:41am

Not sure what the market is in your geography, but this seems crazy. Especially if there's no severance. 12 month non-compete should come with 12 months of severance. I think you're too junior to have a non-compete and perhaps they just gave you a form offer. Just talk to them about it. If they did it on purpose, maybe they'll point toward equity or some other form of consideration they are giving you in "exchange" for a non-compete. I'd push back either way...

Also look into what they can terminate you for. They probably have a very employer friendly definition of "Cause".

 
Jul 5, 2015 - 2:51am

So much bad advice above.

No idea of employment law in HK but non competes definitely don't require "severance." Also, at the outset of employment the offer is legally sufficient as consideration for a non-compete.

That said, 12 months is quite long. What you need to do is speak with a knowledgeable lawyer. 24 hours exploding is absurd. Tell the firm to fuck off as that's not enough time to seek legal advice, which is something you should always do when signing a contract that has any restrictive covenants or strange clauses. (And possibly something you are representing you have done upon executing.)

More generally, I would be wary of any firm employing these kinds of tactics (ie high-pressure offers; not allowing you to seek competent legal advice, etc...)

 
Jul 5, 2015 - 5:02pm

mrb87:

So much bad advice above.

No idea of employment law in HK but non competes definitely don't require "severance." Also, at the outset of employment the offer is legally sufficient as consideration for a non-compete.

mrb87, I agree on your advice to get a lawyer. But I think you're off on the severance point. Having been in PE a while and negotiated offer letters with C-suites before I do know what I'm talking about. Also worth noting, I don't know a single PE associate or analyst that has a non-compete (in all of NYC, SF, LA, TX markets).

Take the instance where an employee with a non-compete for 12 months is terminated. Say he/she has worked in PE/Asset Management his/her entire life. What's the employee expected to do? Work at Starbucks for a year after being terminated? Typically you need to pay an employee in order to keep them from earning a living in their trade. While many times non-competes without severance aren't enforceable, the employer sure can make the employee's life miserable. My advice to anyone in any trade would be to never sign a non-compete without severance or significant equity or some other type of consideration.

And the offer in and of itself is definitely not sufficient compensation for a non-compete. I don't know where you got that...

Good luck silvermoon - congratulations on the offer. Your employer should respect you bringing up concerns over a non-compete. If you can't negotiate your own contracts then what good are you negotiating on behalf of LP money?

 
Jul 6, 2015 - 10:16am

wookie102:

mrb87: So much bad advice above.
No idea of employment law in HK but non competes definitely don't require "severance." Also, at the outset of employment the offer is legally sufficient as consideration for a non-compete.

mrb87, I agree on your advice to get a lawyer. But I think you're off on the severance point. Having been in PE a while and negotiated offer letters with C-suites before I do know what I'm talking about. Also worth noting, I don't know a single PE associate or analyst that has a non-compete (in all of NYC, SF, LA, TX markets).

Take the instance where an employee with a non-compete for 12 months is terminated. Say he/she has worked in PE/Asset Management his/her entire life. What's the employee expected to do? Work at Starbucks for a year after being terminated? Typically you need to pay an employee in order to keep them from earning a living in their trade. While many times non-competes without severance aren't enforceable, the employer sure can make the employee's life miserable. My advice to anyone in any trade would be to never sign a non-compete without severance or significant equity or some other type of consideration.

And the offer in and of itself is definitely not sufficient compensation for a non-compete. I don't know where you got that...

Good luck silvermoon - congratulations on the offer. Your employer should respect you bringing up concerns over a non-compete. If you can't negotiate your own contracts then what good are you negotiating on behalf of LP money?

Severance is different than paid non-compete and usually there are modifying clauses depending on the circumstances under which an employee leaves. Obviously in the case of being fired without cause there needs to be severance...

 
Jul 5, 2015 - 11:47am

As stated above, you need to get more time to talk to a lawyer. Giving you a 24 hour exploding offer over a weekend (and a holiday weekend to an American, but perhaps they don't know that), not being from that country and it being a really restrictive agreement is pretty crappy on their part. You most likely couldn't talk to a lawyer even if you already had one there. The problem is that every country has sometimes wildly different rules regarding non-compete's (hell, every state in the US has different ones-they're not enforceable in CA) and the market customs are different everywhere so you just can't know them.

Although 12 months covering all of SE Asia and all third party capital management seems pretty absurd. SSits may be able to tell you if this is common in HK.

 
Jul 5, 2015 - 2:57pm

Sounds off market. I have a friend who worked for Warburg Pincus in one jurisdiction covered by your non compete, then worked for another PE shop in another jurisdiction also covered by your non compete with only a few months gardening leave.

Those who can, do. Those who can't, post threads about how to do it on WSO.
 
Jul 5, 2015 - 4:46pm

Non-compete is usually in the contract. My direct experience is IB rather than PE shop, but I've seen friends in PE (eg like my ex-WP friend) whose employment history suggest it's similar 1 - 3 month periods only. 1 year is designed to stop you ever leaving (as long as you want to stay in the industry) and is very off market. It's the sort of narrow minded outlook I'd expect to see in Asia from either (i) a PE who thinks their manhood is so big it has its own gravitational pull or (ii) some mainland Chinese partner/director telling his HR department to do it this way.

Those who can, do. Those who can't, post threads about how to do it on WSO.
  • 1
 
Jul 5, 2015 - 4:54pm

Just an FYI, that non-compete would be unenforceable in basically every jurisdiction in the U.S. if an American employer put it forth. The courts have generally held that non-competes must be narrowly focused to geography (i.e. not covering entire nations) and narrowly focused to industry. So hopefully that gives you some form of reference--even in the U.S., which is employer friendly, such non-competes would be unenforceable. So it's a pretty absurd demand from your prospective employer.

Array

 
Sep 3, 2015 - 11:45pm

So how did you respond to the offer? I recently received an offer for a mid market pe firm focusing in Asia. The terms stipulates a 3 months notice + 3 months of not being able to work for another competing firm. The definition of competing firm and geography is quite well defined. Is this common practice for PE firms? Thanks!

 
Mar 2, 2016 - 3:28pm

Sorry that this took a while. I didnt end up taking it. Had other personal issues on top of the non-compete.

They eventually reduced it to 6 month (in addition to 3 month notice) and states that the non-compete is only there to make sure I give them a heads up when I leave. But in all honesty I think it's really off market as 3+6 is significantly different from 3+3, especially when the 6 is unpaid.

Bigger issue I've seen from a friend who took a similar position is the inability to recruit elsewhere. Employers may at times be willing to wait for up to 6 month (with the understanding that it could be as short as 3 if your firm waives the non-compete) but once you get to the VP level (which will likely be when you make your next move) waiting 9 month is pretty absurd as most recruitings are on a need to basis and they don't have such luxury of time.

I'd say 3 + 3 is the max we can accept at our level, anything further is pretty absurb.

 
Mar 2, 2016 - 3:29pm

Non-compete clause PE Associate (Originally Posted: 08/16/2013)

Hey guys,

I was wondering, if some of you have experience with non-compete clauses in employment contracts for pre-MBA Associates. Is it usual in the industry to have these? And if yes, how long is typical?

I assume that, if its long (say 6 months or so), this can be a major burden to get hired somewhere else in case you need to leave after the 2 year program (if you are not going for an MBA to sit out that period, which would be the case for me as I am based in Europe where an MBA is not really required)?

Many thanks for your thoughts
T

 
Mar 2, 2016 - 3:31pm

Woah, what!? No, a 6 month non-compete is NOT standard.

There's no reason it needs to be that long. Maybe a month, 2 months max. Especially at the junior level. It should be paid leave in order to flush out any proprietary intel you ma have.

FYI, its widely known that non-competes are fairly unenforceable. But thats another issue all together.

Array
 
Mar 2, 2016 - 3:32pm

Definitely not normal for a pre-MBA in the U.S. I honestly can't speak for Europe. However, any time that you have a non-compete, you should negotiate for severance that lasts the duration of the non-compete. In your case, you should demand six months severance at the end of your employment. Given you are such a junior employee, I'm surprised you have a non-compete at all. Try to negotiate it away, or at least reduce the period to just a couple of months (and include the severance).

CompBanker

 
Mar 2, 2016 - 3:33pm

Sounds a bit like Jefferies to me. Notoriously sensitive about locking people in.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 
Mar 2, 2016 - 3:34pm

non-compete clauses (Originally Posted: 09/12/2007)

I just spent this past summer interning with Susquehanna (a prop trading firm) and loved it, but I'm a little wary of joining as a full time employee. The reason is that, while they're a great company, I'm not sure how I feel about the non-compete/non-solicitation clause that they make their employees sign (three years, and if you leave after that, one more year).. also heard from others that their legal department is serious about these rules. Is this a valid reason not to join them? How would I deal with this if I want to leave (or god forbid, get fired)? While I was there, I liked what I saw, but I hate the idea of volutarily pigeonholing myself to one company. Are these contracts common at other prop-trading firms/hedge funds (mainly.. Jane Street, DE Shaw, Millenium)? What about at banks?

 
Mar 2, 2016 - 3:38pm

it seems pretty common practice in those types of firms...since they're all in the same business they'd all want to insure their talent isn't defecting to their rivals..
while yea it's kinda constraining, i think that if you get fired, there's usually a clause modifying the terms in that case (if not, id argue for one if at all possible). if you leave on your own...that's fair and pretty common to have a year of noncompete (this is the case even when big guys leave say goldman or something to start their own firms)
anyone else have any insight?

 
Mar 2, 2016 - 3:39pm

noncompete clauses are illegal and unenforceable unless you are compensated for not being able to "ply your trade" (and even then, the defense is pretty flimsy). Sign away.

You shouldn't be soliciting legal advice from an internet forum but if you talk to an employment lawyer they will corroborate this.

 
Mar 2, 2016 - 3:44pm

non competes/disclosures... (Originally Posted: 07/26/2008)

would like to discuss these - more specifically lack thereof... - with anyone who's had experience, from a quant research perspective. PM me, for obvious reasons.

 
Mar 2, 2016 - 3:50pm

It depends on a few things....

1) What state the contract is made in and any precedent set forth in the standard in the legal code.
2) It depends on the nature of the job you are doing and the type of information present, most notably trade secrets and proprietary data, and confidential information
3) What is the likelihood of your employer following up and suing you for breach?
4) The specifics of your job - I know some jobs have a 30-90 non-compete and others have 2 year with regional and geographic requirements.

 
Mar 2, 2016 - 3:51pm

Non-compete language (Originally Posted: 03/07/2011)

Question about non-competes:

I am being asked to sign a 12 month non-compete that comprises two parts.

  1. Don't take clients

  2. Don't work for another consulting company (in the U.S., in the industry I work in)

I know that I should be asking an employment lawyer (and I will likely consult one), but I was wondering if anyone knows (from experience, etc.) if the second point is standard in non-competes? I have no bones about point 1.

 
Mar 2, 2016 - 3:55pm

Validity depends on the state. I left my old firm for a MBB firm and simply ignored the non-compete; at a junior level it's unlikely to be enforced, and in quite a few states the supreme courts have made precedent of ignoring non-competes (MA and CA spring to mind).

 
Mar 2, 2016 - 3:56pm

Legal issues with leaving firm? (Originally Posted: 04/14/2013)

I've been at working at a boutique consulting firm (think OW, ZS) for the past 2 years and have decided it's time to move on. I just received an BB IB offer but was looking through my current terms of employment and noticed there's a section that says I'm not allowed to work for any 'direct competitor' for six months after I leave the company. What the firm indicates as a 'direct competitor' is very broad - any company that engages in consulting services and/or financial management advisory type work. If it makes a difference, the group I'll be joining is directly related to what my firm specializes in (e.g. if I was at OW, I'd be joining a FIG group)

Are there really going to be legal ramifications here? There's no way anyone can stick to those terms of employment or else consultants wouldn't be able to work anywhere.

 
Mar 2, 2016 - 3:57pm

I am not your lawyer and this is not legal advice. If you want legal advice, you should consult and retain an attorney.

Is there a stipulated damages clause? E.g. does it say you forfeit some pay or something if you do? If not, then while you technically could be liable, it would be near impossible for them to prove any damages, and as such a suit is unlikely. Therefore, unless a stipulated damages clause is included, you're fine.

"They are all former investment bankers that were laid off in the economic collapse that Nancy Pelosi caused. They have no marketable skills, but by God they work hard."
 
Mar 2, 2016 - 3:58pm

Try Avvo.com

http://www.avvo.com/ask-a-lawyer?ref=homepage

"Come at me, bro"- José de Palafox y Melci

 
Mar 2, 2016 - 4:00pm

Disclosing confidentiality agreement (Originally Posted: 12/01/2012)

So I was going through the new employee paperwork for a consulting gig and said "yes" when asked if I've accepted any confidentiality agreements in the past

Over a year ago, I had a short internship and had to sign a confidentiality agreement. I wasn't really exposed to much, if any sensitive information. This agreement also had a intellectual property clause that stated anything I create during my employment + x months after belongs to the company (it's been well over x months since I left).

The consulting firm now wants to see the agreement I signed to see if there's any conflicts that would interfere with the position. The consultancy also has an IP clause in their own agreement.

Is this something that could potentially cost me the job? The confidential info I had access to was minuscule and I don't even remember the details of it.
I was thinking of saying that I misunderstood the question on the paperwork to prevent further inquiry but I think this could raise red flags since I've already admitted to signing the agreement.

Anyone have experience with this? I really don't want to lose out on this position

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