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Can a no-compete clause be applied to two companies owned by the same trans-national conglomerate? If sister companies are under the same umbrella organization, does that have any bearing on whether or not a no-compete is enforced when moving from one company owned by the conglomerate to another company?

  • Why would a conglomerate company have two sister-companies that compete against each other? – Ron Beyer Apr 13 at 22:13
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    @RonBeyer: Acquisitions or spinoffs are two reasons that come immediately to mind. Also, there may be companies that are close enough to be covered even if they don't compete with one another directly (e.g. non-compete specifies loan companies, where company A is an auto loan provider and company B does home mortgages). – sharur Apr 13 at 22:54
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Does a no-compete apply to two companies owned by the same corporation?

At first glance, it seems to depend on the language of the non-compete clause. However, hiring the candidate would (1) constitute a waiver of the clause (and thus forfeit enforcement thereof); and/or (2) render the clause a moot issue, they key point being that each sister company is an agency serving (or working for) the corporation that owns them all.

The matter of waiver would be established if it can be proved that the corporation was aware, or should have been aware, of the candidate's employment at one of its other companies. Accordingly, the new hire --and arguably even the act of interviewing the candidate for the new position-- implies that the corporation consented to void its non-compete clause for a possible intra-corporation switch.

The issue of mootness is evident from the ultimate purpose of non-compete clauses: namely, to protect the corporation's profit by preventing a skilled worker from joining a "foreign" competitor (that is, from outside the corporation). Here, the candidate's transfer from one company to another from the same conglomerate implies that the corporation is to keep profiting from his skills set, as opposed to losing that asset to another corporation.

Related to the notion of mootness is the principle of venire contra factum proprium ("No one may set himself in contradiction to his own previous conduct").

Even if the non-compete clause prohibits the attempt of intra-corporation transfers, the corporation would be unable to prove damages from the candidate's application to a sister company. The rationale is again that the corporation is not losing him to a competing corporation.

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Can it?

Yes.

Contracts can explicitly apply benefits to 3rd parties - I can contract with you to do mechanical work on my brother's car. Similarly, I can contract with you not to compete with the businesses of corporations A, B & C - either by explicitly naming them or by capturing them by description e.g. Corporation A and all associated corporations.

Traditionally, because of the doctrine of privity, contracts for the benefit of 3rd parties run into a pretty substantial enforcement issue - because the 3rd party is not a party to the contract they have no standing to sue at common law. Some jurisdictions (e.g. England and Wales) have enacted statutes to give such third-parties standing but this is by no means universal.

Of course, this can be solved by making the contract between you and all of the relevant companies. However, this would not give companies that were spun up or acquired after the contract was formed standing.

Does it?

You would have to read the specific non-compete.

One of the problems with this sort of "scattergun" approach is that non-compete contracts have to be narrowly tailored to be valid. Because they are a restraint of trade, they are only valid if they limit your rights only to the extent necessary to protect your employer's legitimate interests. While it may be reasonable to restrict the CEO of Pepsico from working with another soft-drink company anywhere in the world, it is hardly reasonable to so restrict a line-worker.

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