The ties that bind (or not)…Restrictive Covenants, Part I
The start of an employment relationship is, in some respects, like the start of a romantic relationship. Seasoned executives become giddy with the prospect of a new love, er, recruit. “He/she is perfect! I want him/her to start tomorrow!” they say to their employment lawyer. To which we say (among other things): “Do you want the employment agreement to have a restrictive covenant?”
“Weren’t you listening? I said they are perfect! And starting tomorrow! Why do we need that?”
In fact, you don’t need a restrictive covenant for most employees. In certain circumstances, however, you may be particularly vulnerable. For instance, the employee may have or be expected to develop special relationships of confidence and trust with other key employees, customers or suppliers, making your business vulnerable to the employee soliciting them after termination of their employment. The employee may have, or develop, special knowledge and relationships critical to your business, such that the employee could easily compete after departure.
In these circumstances, you can negotiate restrictions on soliciting other employees, customers or suppliers after termination. Or you can negotiate the nuclear option, a blanket prohibition against competition after termination.
Of course, if it is that easy, why not throw one of these nifty clauses into every employment agreement? The reason is, the courts are very reluctant to enforce restrictions on former employees’ ability to make a living, and other businesses from using their skills. Courts will not enforce a restrictive covenant against a departing employee unless you can show that the restraints imposed are reasonable between the parties and in reference to the public interest (for some relevant authority, see previous post.)
In following posts, we will discuss the key factors and practical realities of enforcement and suggest practical tips for employers when negotiating such covenants.
Departing Employees Restrictive Covenant termination