Q: What are restrictive covenants in employment contracts, and should I use them?
A: Dear Eager:
Whenever an employee is terminated, laid off, or resigns, there’s always a chance the individual might use the inside knowledge of your operation to benefit a competitor. Adding restrictive covenants to your employment agreements can protect your company against this.
Restrictive covenants are legally binding agreements that prohibit departing employees (and contractors) from taking certain actions after they leave your employment. Restrictive covenants are often contained in a clause within an employment agreement, but they can also be a stand-alone contract.
The three most common restrictive covenants include non-solicitation, non-compete, and non-disclosure. A non-solicitation agreement prohibits a worker from soliciting, or poaching, your clients, customers, and employees after leaving your employment.
A non-compete agreement restricts an employee’s ability to compete with your company after their employment ends. Specifically, non-competes prevent departing employees from taking a position with a competitor—or starting their own business—and using your inside company information to compete with you.
A non-disclosure agreement (NDA), or confidentiality agreement, prohibits an employee from disclosing your company’s confidential and proprietary information to any person outside the company.
Whether you need to draw up new employment agreements containing restrictive covenants, or you would like us to review your existing agreements, meet with a Family Business Lawyer™.