Restrictive Covenants

Most businesses know what a Non-Compete Agreement is.

Kind of.

What most businesses know is that a non-compete is something a company uses to have employees agree not to work for a competitor when they leave the company. That is true – as far as that understanding goes. But there is more to what we call “non-competes” than just that one point. Agreements that are often referred to as “Non-Compete Agreements” often contain more than just a “non-compete” clause. They also usually contain non-solicitation clauses (for customers and for employees), as well as confidentiality or trade secret clauses. Technically, that is why these agreements often generically are called, “Restrictive Covenant Agreements.” Sometimes, however, they have long, technically accurate titles, such as, “Non-Competition, Non-Solicitation, and Confidentiality and Trade Secrets Agreement.” Nevertheless, as may be evident by now, people often just refer to these agreements colloquially as, “Non-Compete Agreements” – even when they contain non-solicitation and confidentiality provisions as well.

And it is worth taking a minute or two to understand a few more details about these very important agreements to make sure they are being drafted properly and being used properly. After all, the first thing an employee with a non-compete will do after quitting in a huff (or getting fired) is to have a lawyer review his or her non-compete and see if it is enforceable. The second thing the employee is likely to do is to ignore the non-compete agreement and proceed to compete with the company anyway. Therefore, it is important that companies know in advance that their non-competes will stand up in court.

Non-Compete Provision
A “non-competition provision” is the part of an agreement that prohibits a former employee from working at all for another employer that competes with the original employer. This provision is the broadest of all the restrictive provisions in the agreement because it closes off entirely the possibility of the former employee working for a certain group of employers. For this reason, courts scrutinize the “non-compete provision” most closely to make sure it is narrowly tailored to meet the employer’s legitimate interest in protecting against unfair competition.

Non-Solicitation (of Customers) Provision
These agreements almost always include a less restrictive provision called a “non-solicitation (of customers) provision.” This provision does not prohibit a former employee from working for a competing company. Rather, it typically prohibits a departing employee from trying to solicit customers of the original employer. This provision typically is used for employees who develop close relationships with a company’s customers.

Non-Solicitation (of Employees) Provision
In addition to prohibiting former employees from soliciting former customers, these agreements often include a provision that precludes departing employees from soliciting other employees of the original employer to leave the company.

Confidentiality Provision
Every employer has information that it considers to be confidential and that it takes significant efforts to protect. Such information often includes customer lists, pricing information, business models, or other trade secrets. To protect against departing employees taking, disclosing, or using such information, these agreements universally contain provisions – often, long and elaborate ones – describing the type of information that a company deems to be confidential and the severe consequences that will occur if a departing employee violates these protections.

Choosing which provisions to include in a non-compete agreement and how to determine the precise scope of its provisions requires careful analysis of the agreement, the employer’s business, and the employee’s job. At Luchansky Law, our lawyers can provide valuable assistance to employers and employees by reviewing existing non-compete agreements, drafting new ones, or providing aggressive representation during disputes over non-competition agreements.

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