Restrictive covenants in the US: navigating the quagmire of enforceability

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Post-employment restrictive covenants in the context of employment relationships have long posed challenges for employers. Both the nature of the agreement and the context in which it is entered into impact the enforceability of restrictive covenants. The lack of a unified or “national” body of law on restrictive covenants within the US further complicates the issue. For example, in some states, restrictive covenants are governed by the common law of contracts, and generally will be enforced if they are “reasonable” under the circumstances. Yet even the concept of what is “reasonable” varies from state to state. Other states have enacted statutes specifically governing restrictive covenants, often imposing strict requirements on the enforcement of the covenants and, in some cases, virtually prohibiting them. Ultimately, the enforceability of any restrictive covenant will depend on which state’s law applies, which in turn may depend on where the dispute is litigated.

OVERVIEW OF RESTRICTIVE COVENANTS IN THE US -

Restrictive covenants are commonly used by employers to protect their valuable business interests, including:

- Trade secrets.

- Confidential information.

- Customer goodwill.

- The training and investment in their talent pool.

Post-employment covenants can vary significantly in scope, ranging from the most restrictive pure non-competition agreements to garden leave provisions, non-solicitation covenants and simple confidentiality agreements.

Originally published in the Employment and Employee Benefits multi-jurisdictional guide 2012/13.

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