Less is More: Restrictive Covenants Part II

As noted in our previous post, courts will not enforce a restrictive covenant against a departing employee unless the former employer can show the restraints imposed are reasonable between the parties and in reference to the public interest. So consider,
1.  Is there a legitimate business interest being protected?
2.  Is the restraint imposed reasonable, and not beyond what is necessary to protect the employer’s legitimate business interests, particularly in terms of its duration, geographic scope and the activities restrained?
3. Is the language clear?

There is no bright line rule for establishing the duration of a non-compete, but usually employers seek a year. If the non-compete is tied to a commercial transaction, such as where the employee is selling an interest in the business yet continuing to work, a longer period will be enforced by the courts.  We encourage you to consider: do you really need a year? The shorter the time, the easier to enforce.

What about the territory covered by the non-compete? This is easy when thinking about a local business, serving a defined area. But what about technology or online businesses, or manufacturers who distribute over a wide area? In some limited cases, a worldwide non-compete may be sought, in which case you must draft a definition of “competitive business” that mirrors your business as closely as possible.

We have also seen companies include specific competitors in the definition of “competitive business”. If one or two key competitors are a concern, this can be a good strategy. However, you must have a very clear idea of what the business of your competitors actually is before naming them. If their business is different than you suspected, including them can imperil the enforceability of your restrictive covenant, as the employee will be able to argue that the restriction is unnecessary and unreasonable.

In short: Less is more. Keep the duration and territory as short as you can, while still protecting your legitimate interests.

Departing Employees restrictive covenants termination



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