Why can’t non-compete clauses be included in employment agreements under an EOR?

When working with an Employer of Record (EOR) like Horizons, it’s natural to want to protect your business interests, especially when hiring key personnel. One common question we receive from clients is whether they can include a non-compete clause in an employee’s contract. While this request is understandable, it’s important to recognize that non-compete clauses are not enforceable in the context of an EOR employment structure. Here's why.


What Is an Employer of Record (EOR)?

An Employer of Record (EOR) is a third-party organization that legally employs talent on behalf of your company. Your business directs the employee’s daily work, while the EOR handles:

  • Employment contracts

  • Payroll and benefits

  • Tax compliance

  • Local labor law adherence

This setup enables your company to quickly and compliantly hire workers in other countries without having to establish a local legal entity. However, because the EOR is the legal employer, this impacts what kinds of contract provisions, like non-competes, can be included.


Why Non-Compete Clauses Don’t Work in an EOR Model

A non-compete clause restricts a former employee from working with competitors or starting a similar business for a certain period and within a specific region after leaving employment. For such a clause to be enforceable, it must:

  1. Protect the direct business interests of the legal employer

  2. Be reasonable in scope, duration, and geography


Under an EOR arrangement, the employment contract is between the employee and Horizons, not your company. This means:

  • The EOR is the only entity with standing to include enforceable post-employment restrictions.

  • A clause protecting your company’s competitive interests (e.g., in your industry or market) would not be legally valid, because it does not protect the EOR's business.

Example

Let’s say your company is in the pharmaceutical industry, and you want to prevent a contractor hired via Horizons from working for another pharmaceutical company. Since the individual is employed by Horizons, and Horizons does not operate in that industry, the restriction wouldn’t serve Horizons’ interests, and the non-compete clause would be unenforceable.


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