A Primer on Restrictive Covenants

A restrictive covenant is a promise or agreement to be bound by certain terms for a specific period of time. Often restrictive covenants are used in the employment context when a business has offered a substantial signing bonus to a new employee, or an employee has access to propriety and confidential information as part of the job, or the business has invested in extensive training for an employee. Restrictive covenants are typically signed when a new employee is brought on board, but they do not come into play until that employee separates from employment. Whether to ask employees to sign restrictive covenants depends on the nature of the business and the employee’s role in company. Here are the most common restrictive covenants used in employment agreements:

Non-Compete – A non-compete agreement provides that an employee cannot work for a competitor. The non-compete may be that general, or it may state that an employee cannot perform the same or similar role for a competitor.

Non-Solicitation – A non-solicitation agreement provides that an employee may not market to or work with the former employee’s customers. Non-solicits also typically provide that an employee may not encourage former coworkers to join the employee at a new business.

Confidentiality or Non-Disclosure – A confidentiality or non-disclosure agreement requires an employee to protect the secrecy of the former employer’s proprietary and confidential information such as trade secrets, business processes, marketing plans, and customer/vendor lists that are specific to the former employer’s business.

Courts generally disfavor restrictive covenants in the employment context, but they will enforce agreements that are reasonable in their time and geographic limitations. These agreements are legal documents that will be highly scrutinized in a dispute. Decisions about their enforceability can come down to word choice or comma placement. If you use restrictive covenants for your employees, you can always reach out to us for drafting or review to ensure your agreements are well-crafted.

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