Essential Protection: Restrictive Covenants of Your Employees

by Buchanan Ingersoll & Rooney PC
Contact

No one knows your company better than your employees. And while great employees can be your most valuable asset, disloyal employees can use their insider information to harm or compete against you. You need protection, and an indispensable tool is the contract. Contracts can restrict what employees may do—both during and after their employment. These types of clauses are called restrictive covenants. They can be included in employment contracts or in separate confidentiality, non-solicitation and non-competition agreements. This post discusses the most common types of restrictive covenants and some tips to keep in mind when considering them.

Restrictive covenants are promises to refrain from certain behavior. Ideally, they will deter the harmful conduct, but sometimes they will need to be enforced in a court. Thus, it is important to know what types of restrictions a court would enforce, and that varies by state. Because these covenants often pit employer interests against employee rights, courts will typically enforce only reasonable restrictions—those narrowly tailored to protect legitimate business interests.

Every employment relationship is unique; so too is the application of this reasonableness test—a restriction reasonable for one may not be for another. So you should avoid boilerplate language; instead, consider your particular business interests and how they can be protected (within reason.) An effective restrictive covenant requires balance: if written overly broad or vague it may be unenforceable, but too narrow and it may omit unforeseen interests needing protection. One solution is to pair a broadly worded restriction with a nonexclusive list of specifically banned activities.

Non-Compete Clauses

These clauses prohibit employees from competing against you—on their own or for a competitor during the term of employment and for an agreed upon period of time after termination of employment. Banning the employee from all business activity would be unreasonable (and thus unenforceable), so limit the clause to the kinds of business you do or may do in the future. Restrict not only working for a competitor or starting a competing business, but also consulting and advising. Be sure to specify the geographic area of the restriction and how long it will last after they leave. Reasonableness will depend on the nature of your business, but generally courts disfavor restrictions that prevent employees from earning a living. Thus, the longer and broader the restriction the less likely it will be enforceable.

Non-Poaching Clauses

These clauses prohibit employees from attempting to induce other employees to leave your company during the term of employment and for an agreed upon period of time after termination of employment. Specify who is covered, and consider including former and future employees within a reasonable window. Also include any independent contractors engaged by the company.

Non-Solicitation Clauses

These clauses ban attempts to steal away your customers, clients, vendors, suppliers, and anyone else that deals with your company during the term of employment and for an agreed upon period of time after termination of employment. The restriction should cover any attempt to induce these contacts to stop or reduce their business with you. Include former and potential customers with whom you have contact. The restriction should also bar the employee from doing business with them in any way that interferes with your business.

Non-Disclosure and Non-Use of Confidential Information Clauses

These clauses prohibit employees from divulging or using to their advantage information learned while in your employ. For the most sensitive and proprietary information, trade secret protection may be available and would last as long as that information stays secret (i.e., during the term of employment and at all times thereafter. But also consider restricting other sensitive information for a reasonable time. Enumerate the types of information your company considers valuable; this can help employees understand what needs to be protected. Add a restriction requiring employees to turn over all company-related information in any form when they leave. To guard against inadvertent disclosures, require assurances that they use their best efforts to guard all company information both during and after their employment.

Intellectual Property Ownership Clauses

Employees have the potential to create all kinds of intellectual property. A clause that grants the company ownership in all intellectual property created by the employee during their employment can avoid costly squabbles down the road. Define intellectual property as everything created as part of their work, or using knowledge acquired as an employee, or created using company resources. Include an assurance that the employee will cooperate in assisting you with ownership documents even after they leave. Finally, require them to disclose all IP they may have owned before joining the company to avoid a later claim that it was created prior to working for you.

Other Considerations

Besides reasonableness, enforceability could depend on whether the employee really agreed to the restrictions and was offered something in return. This can be accomplished by having them read and sign the restrictive covenant as part of an employment agreement, promotion or exit package, or at any other time. It’s also important to verify that the employee is not already bound by some other restrictive covenant from a previous job. Periodically review and update the employee’s restrictive covenants as their responsibilities may change over time. Finally, the enforceability of these covenants could be affected if the employer breaches the employment or other contract.

Restrictive covenants are a useful tool for employers, but laws vary significantly by jurisdiction.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Buchanan Ingersoll & Rooney PC | Attorney Advertising

Written by:

Buchanan Ingersoll & Rooney PC
Contact
more
less

Buchanan Ingersoll & Rooney PC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.