You Must Protect This House! – Restrictive Covenants
I probably get a call or question once a week about the enforceability of restrictive covenants (i.e., non-compete/non-solicit/non-disparagement/confidentiality clauses). It should be straightforward, right? When you hire someone for a job, part of their agreement is they won’t go work for your competitor and take all your secrets when they leave. Alternatively, if you are a partner or shareholder in a company and decide to move on, the trade secrets of the company should stay with the company. Seems straight forward.
Okay, that’s a bit simplistic and it is not that easy. In fact, every State has their own rules related to these often used and misunderstood provisions that range from allowing them all the way to not allowing them at all. To make matters even more complex, the FTC has waded into this topic with a goal of eliminating non-competes (for the most part). So, what is the right answer?
Over the next few weeks, we will explore the key restrictive covenants clauses that are used in employment, shareholder or partnership agreements. Below is a quick over of each:
- Non-Compete – a clause that prohibits a former employee/shareholder/partner from competing against their former employer or company within a particular geographic area for a specified period of time.
- Non-Solicit – a clause that prohibits a former employee/shareholder/partner from soliciting its former employer’s/company’s current, prior and/or prospective customers for a specified period of time.
- Non-Disparagement – a clause that prohibits employees/shareholders/partners (or former) from soliciting making negative statements about their employer/company.
- Non-Poaching – a clause that prohibits a former employee/shareholder/partner from soliciting the former employer’s/company’s employees, for example, to work at a competing business.
- Confidentiality – a clause that prevents a former employee/shareholder/partner from disclosing or using the proprietary information of the former employer/company.
Restrictive covenants, like Under Armour famously says in its advertisements, are effective ways to “Protect this house!” when drafted and implemented properly. Companies and employers should make sure these provisions are reviewed on a regular basis with their professional business advisors and internal team members (namely legal counsel and HR).
Here are a few other things that may be of interest:
- The latest from Attract Capital
- The latest from NYBB Group
- NFIB Updates
As always, please don’t hesitate to email myself (firstname.lastname@example.org), Andy Miller (email@example.com), Christian Miller (firstname.lastname@example.org), Erik Spurlin (email@example.com), Brad Leber (firstname.lastname@example.org) or anyone in our office with questions or comments.