A restrictive covenant, whether it is a stand-alone document or part of an employment agreement, is often used in preventing an employee from working for a competitor (non-compete), misappropriating a company’s trade secrets or other confidential information (confidentiality or non-disclosure), soliciting customers, or soliciting other employees to leave the company (non-solicitation). This article addresses some general key points which can be included in a restrictive covenant agreement. However, it is essential to keep in mind that state laws govern restrictive covenants, and such laws often differ from state to state. Thus, a restrictive covenant may be enforceable in one state but not in another. Irrespective of jurisdiction, all courts impose significant burdens on employers to show that restrictive covenants are reasonable and truly justified before they will enforce them.

Covenants Not to Compete

A covenant not to compete is often in an employment agreement involving an employee who may pose a competitive threat if he or she were to leave the company. Such terms should be specific, and not overly broad. When it comes to enforcing such agreements in court, some courts begin the analysis with a presumption against enforcing a non-compete. To overcome this presumption, the employer must demonstrate that the covenant is necessary to protect a legitimate interest. A company’s legitimate interests may include protecting goodwill or customer relationships, preventing disclosure of customer information or trade secrets, and avoiding unfair competition from a departing employee with unique skills or specialized knowledge.

Customer Non-Solicitation Agreements

Customer non-solicitation agreements or terms are often included in an employment agreement with an employee who has developed significant relationships and goodwill with customers that significantly impact the company’s business. The purpose of the agreement is to prevent the former employee from soliciting away the company’s important and longstanding customers. However, it is important to distinguish this term from non-compete; customer non-solicitation is not to prevent the employee from working for a competitor.

While non-solicitation agreements and terms are more often enforceable than covenants not to compete terms, non-solicitation agreements must also be reasonable and no broader than necessary to protect the employer’s justified business interests.

Employee Non-Solicitation Agreements

Employee non-solicitation agreement is used to prevent a departing employee from soliciting their co-workers from leaving with the departing employee. This is valuable to employers because they prevent employees from arranging a mass exit with their co-workers

Non-disclosure and Confidentiality Agreements (NDA)

A non-disclosure agreement, also known as a confidentiality agreement, is often a requirement for employees who have access to company trade secrets. Trade secrets, also known as confidential and proprietary information, can be product formulas, patterns, compilations, software, financial strategies, and methods of conducting business that the employer keeps confidential and uses to its advantage over competitors. Trade secrets need not exist in some tangible format; they can be ideas, theories, or concepts. This type of agreement prevents employees from using the employer’s confidential and proprietary information.

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