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
Two sections of the Employment Law Manual now reflects Runzheimer Int'l, Ltd. v. Friedlen, in which the Wisconsin Supreme Court ruled that continued employment of an existing at-will employee is adequate consideration supporting the enforcement of a restrictive covenant.
In-depth review of the spectrum of New York employment law requirements HR must follow with respect to the terms of employment.
In-depth review of the spectrum of Wisconsin employment law requirements HR must follow with respect to terms of employment.
In-depth review of the spectrum of Maryland employment law requirements HR must follow with respect to terms of employment.
Arkansas has enacted a law that addresses when covenants not to compete would be enforceable in an employment relationship.
Arkansas has enacted a new law that clearly explains when covenants not to compete, or noncompete agreements, would be enforceable in the context of an employment relationship.
California employers seeking to advise employees of the company's exit process should consider including this model policy statement in their handbook.
In-depth review of the spectrum of Utah employment law requirements HR must follow with respect to terms of employment.
This section helps HR professionals manage challenges that come with operating in multiple states, notably complying with differing state and key municipal laws, and addresses the pros and cons of having a centralized or decentralized HR department. Trends currently affecting multistate employers are identified, such as same-sex marriage laws and tracking various state leave laws, are discussed.
Guidance for HR on the advantages of using restrictive covenants.