Restrictive Covenants in Employment Contracts

7 November 2017 – Employers often insert restrictive covenants, such as non-solicitation and non-competition agreements, into employment agreements to limit or restrict an employee’s conduct once the employment relationship ends.

To summarize, most restrictive covenants fall into the following categories:

  1. Non-solicitation of customers

Prevents a former employee from directly contacting or soliciting clients or customers of the former employer for a defined period of time after the employment relationship terminates.

  1. Non-solicitation of employees

Restricts a former employee’s ability to solicit the employer’s employees in order to protect its business interests. Courts may interpret employee non-solicitation clauses more generously than non-compete or non-solicitation of client clauses, as employee non-solicitation clauses are generally viewed to be less restrictive on the departing employee.

  1. Non-competition

Restricts an employee from engaging in a business that competes with the business of his or her former employer following the termination of his or her employment relationship.

Like all restrictive covenants, in order to be enforceable, a non-competition clause must be reasonable between the parties as to the following factors:

  1. The length of time of the restriction;
  2. The geographic location that is subject to restriction; and
  3. The overall scope of activities that are subject to restriction.

The takeaway for any employer is that a restrictive covenant should only be as broad as necessary to protect one’s legitimate business interests. If you cannot justify the scope of a restrictive covenant, the court may not enforce it. Ask yourself: is this restriction totally necessary to protect my business, or will something less restrictive suffice?