Crafting Non-Compete and Restrictive Covenant Contracts

An Arizona appeals court upheld a judgment of over $500,000 against a New York-based computer company after the company pursued an ex-employee for going to work at a competitor. The woman’s new employer terminated her after finding out about the dispute. Despite ambiguity in the non-compete clause, the court found that the woman’s new company was not in fact a competitor of her former employer.

In Philadelphia, Pennsylvania, two sides reached a $2 million settlement over a restrictive covenant agreement. The plaintiff company fired the defendant after he refused to sign a restrictive covenant. The defendant went on to found another company. Even though there was no restrictive covenant in place, the plaintiff sued the defendant, alleging that he breached a restrictive covenant and misappropriated trade secrets. The defendant counter-sued the plaintiff for its baseless claims. The plaintiff ultimately had to pay $2 million to the original defendant for the costly and baseless two-year legal battle.

Substantial court judgments and protection of trade secrets are just two of the items at stake when employer’s use non-compete clauses and restrictive covenants with employees. If you would like to learn more about crafting non-compete contracts and restrictive covenants to avoid future litigation expenses, a Monmouth County business lawyer can provide the experience you and your business need.

Crafting Non-Compete and Restrictive Covenant Contracts

Non-compete clauses and restrictive covenants are a way for an employer to protect confidential and important information when its employees leave and go elsewhere, particularly if they go to a competitor. With employees increasingly changing jobs more frequently, these contracts can be an important part of running a profitable business.

The following are some of the ways these contracts work to protect an employer:

  • Restricting geographic scope. The sizes of the city or metropolitan area where the employer and employee are located play an important role in this consideration. For instance, a former employee is more likely to hurt his or her past employer if they are in a small town where the parties will frequently run into one another.
  • Restricting the use of an employee’s skills. An employer can restrict such things as competitors at which an employee may go to work, what type of work that employee can do for a competitor and whether an employee can immediately found his or her own new business.
  • Restricting the duration that these limits apply. Courts consider this when striking down non-compete clauses and restrictive covenants. The duration should be reasonable. Excessively long restrictions may appear to be unreasonably constraining the employee’s ability to find new work.
  • Types of assets that such contracts can protect. The non-compete clauses and restrictive covenants cannot be overly broad. They must protect legitimate and important business interests of the employee. Confidential information like trade secrets and customer lists are two such examples.

While courts generally uphold well crafted and narrow non-compete clauses and restrictive covenants, it is important to craft them carefully based on a close review of your business’s situation. For more information about creating non-compete clauses and restrictive covenants on which you can later rely, contact a Monmouth County business attorney at Garland & Mason LL.C..