What is a restrictive covenant?
When drafting any type of employee agreement, a business will likely seek to remain fair but also protect themselves whenever possible. This is true in any type of contract or agreement including employee handbooks, severance agreements and vendor agreements. While it is true that the party writing the document will naturally attempt to favor his or her own stance, the restrictive covenant must ultimately be fair to both parties.
The most common types of restrictive covenants appear in employment contracts. These agreements form the basis for an employer-employee relationship and often prohibit workers from taking specific actions either during their period of employment or for a specified time after their employment ends.
- Non-compete agreements: When the employment period ends, a non-compete agreement is often used to ensure the former employee does not accept a position at a direct competitor to his or her former organization. In general, the terms of a non-compete include both a length of time and a geographic area that must be respected.
- Non-disclosure agreements: This type of agreement generally limits what an employee is legally able to communicate to other individuals. Commonly, information related to the business is restricted. Information such as business processes, trade secrets or process improvements cannot be communicated outside the organization.
- Non-solicitation agreements: This type of agreement generally comes into play when a business is sold or a franchise agreement is in place. Essentially, a non-solicitation agreement restricts the hiring activities of one business against another. The terms of this agreement are likely to limit the marketing and hiring efforts of one organization so that it does not impede the marketing or hiring efforts of the other.
While these agreements must be drafted using clear language that avoids vague conditions, the details of the terms can vary greatly depending on the scope of the business, the nature of their competition and other specific factors. While each contract is unique to the parties involved, it is wise to seek the guidance of a legal professional when drafting and before signaling any type of restrictive covenant.