Overview: One type of employment contract is the restrictive covenant. Employers should safeguard their trade secrets, client or customer information, employee lists or other information that may give them a competitive edge in their industry by requiring employees to sign a restrictive covenant, i.e., noncompete agreement, nonsolicitation agreement, and/or nondisclosure agreement.
Although restricting the use of this information by employees during and after their term of employment may be vital to the protection of an employer's business, an employer must ensure that the terms of the agreement protects the employer's legitimate business interests and extends no further than is reasonably necessary to protect those interests. Employers should be aware, however, that some states do not enforce restrictive covenants at all, while others place restrictions on the types of information that is confidential, the geographic scope of the covenant as well as the duration.
In addition to requiring a new employee to sign a restrictive covenant before working, employers should also ensure prior to hiring the prospective employee that he or she is not subject to a restrictive covenant with his or her former employer. One way to accomplish this is to request that the new employee sign a representation that he or she is not subject to any restriction on competition or other contractual limitation on his or her ability to do the job.
Trends: Restrictive covenants are often challenged by former employees. Employers should carefully review the terms of their restrictive covenants to ensure they don't force an employee out of the entire industry - this would be considered overbroad and the courts may refuse to enforce the agreement, thereby possibly leaving an employer's proprietary information exposed to a former employee to be used for his or her own benefit.
Author: Melissa A. Silver, JD, Legal Editor
In-depth review of the spectrum of California employment law requirements HR must follow with respect to employee communications.
In-depth review of the spectrum of New York employment law requirements HR must follow with respect to employee communications.
In-depth review of the process HR should follow when terminating an employee.
In-depth review of the spectrum of Arizona employment law requirements HR must follow with respect to terms of employment.
An employer can customize this sample letter to demand that a current or former employee stop violating the terms of a restrictive covenant.
An employer may use this form to demand that a current or former employee stop violating the terms of a restrictive covenant and to threaten legal action if he or she continues to engage in the prohibited activity.
The Northern District of Illinois has rejected the Illinois appellate court's holding in Fifield v. Premier Dealer Servs. and ruled that an employee's15 months of employment was sufficient consideration to support a noncompete agreement.
Multistate employers face the challenge of complying with not only federal laws, but also differing state and local laws. This section highlights some of the states' differences in terms of preemployment testing and background checks, noncompetition and nonsolicitation agreements, and discrimination, pay and leave rules.
In-depth review of the spectrum of Delaware employment law requirements HR must follow with respect to employee communications.
In-depth review of the spectrum of Maine employment law requirements HR must follow with respect to employee communications.
Guidance for HR on the advantages of using restrictive covenants.