Can a contract be too restrictive?
In part one, we discussed the various types of employee agreements that might contain language preventing one party from taking certain actions. These restrictive covenants are common no matter the size or scope of the organization. While restrictive covenants are generally legal, they might be invalidated by the court based on terms that could be considered unreasonable.
Any type of restrictive covenant must by reasonable to all invested parties. Strong language or strict restrictions in an employment contract, vendor agreement, non-disclosure agreement or non-compete clause could make the entire contract difficult to enforce. While the business might feel confident that they have acted to protect themselves, they might have left the contract open to a challenge based on its unreasonable nature.
Examples of unreasonableness can include:
- Intangible items: In general, the restrictive covenant should be written to protect measurable items. A chemical formula, for example, could be included in a restrictive covenant. General notions regarding an employee’s experience or subject-matter expertise would likely invalidate the agreement.
- Time and geographic limits: Non-compete agreements, most often, will attempt to limit an individual’s ability to compete directly against his or her former company. This is often done by imposing a period time before an individual can accept a position at a competing organization or limiting the geographic area in which a job can be accepted. When these terms prevent a former employee from seeking gainful employment, they might be considered unreasonable.
- Ambiguous language: As with any business contract, the language in a restrictive covenant must be drafted using clear, concise language. When an organization relies on vague or ambiguous language to protect their own interests, the entire agreement might be invalidated.
Whether focusing on non-disclosure agreements, non-compete agreements or non-solicitation agreements, an organization should use clear language and terms fair to both parties. It is wise to seek the guidance of an experienced attorney when drafting or revising any type of business contract.