What is a restrictive covenant?

Author: Melanie Perez-Vellios, VP Group LLC

A restrictive covenant, which is usually contained within an employment contract, prevents an employee from competing with his or her employer or to acquire any new business using information obtained by the employee during his or her employment with the employer. A restrictive covenant can be a powerful tool in protecting an employer's business when an employee no longer works for the employer. A restrictive covenant includes the following types of agreements: an agreement not to compete with the employer; an agreement not to solicit clients, customers or employees of the employer; and an agreement not to disclose confidential information of an employer. However, the restrictive covenant must be narrowly tailored to protect the employer's specific interests or it will not be enforceable. Further, an employer should be aware that not all states enforce all types of restrictive covenants.