Some employment contracts contain clauses that restrict an employee’s actions both during and after the period of employment. These clauses serve to safeguard the employer’s business interests and commonly include agreements on non-solicitation, non-competition and confidentiality. These clauses may vary in their scope and length of enforcement.
Types of Restrictive Clauses
Non-competition clause: This is an attempt by the employer to limit the employee’s ability to directly or indirectly compete with the employer or to join a competing company during the period of employment or after cessation of employment for a set period of time.
Non-solicitation clause: This is an attempt by the employer to prevent the employee from taking other employees or existing and potential clients from the company, either during the period of employment or after cessation of employment for a set period of time.
Confidentiality agreement: This is an attempt by an employer to limit an employee’s ability to discuss or disclose any confidential information that the employee may become aware of during their employment, such as trade secrets or customer lists. This restriction prohibits such disclosure both during employment and after cessation of employment.
Restrictive Covenants–Generally Void Unless Carefully Drafted
All of these restrictive covenants are a form of restraint on trade. The courts generally view such agreements as mechanisms that limit competition in the market as well as an employee’s ability to sign contracts and to utilize work skills to their advantage. As such, common law treats restrictive covenants, and particularly non-competition clauses, as contrary to public policy and therefore void unless they are reasonable in their scope, properly drafted, and proven necessary.
Are they Enforceable?
Although often viewed unfavorably by the courts, restrictive covenants may be enforceable if certain conditions are met:
- The covenants cannot exist for the simple and general purpose of limiting competition or maintaining the employer’s competitive advantage in the market;
- The employer’s interests that are to be protected must also be legitimate and proprietary; and
- The restriction can only be as broad as is reasonably necessary to protect the employer’s legitimate, proprietary interests.
However, not only the clause itself, but the contract as a whole, as well as all surrounding circumstances must be taken into consideration when determining the enforceability of a restrictive covenant. The onus is on the party seeking to enforce the clause to demonstrate its reasonableness between the involved parties.
Nonetheless, the mere absence of such restrictive covenants does not result in the employee being permitted to compete, solicit and disclose confidential information. Instead, such restrictions, in particular the duty of confidentiality, may be implied.
For related case studies and more information on Non-Solicitation, Non-Competition and Confidentiality Agreements, search our blog.
More Concepts on Employment Contracts
- Employer and Employee Rights and Obligations
- Employment Contracts
- Fiduciary Obligation – The Obligation to Remain Silent
- Types of Employment Contracts – Fixed Term vs. Indefinite Duration
- Who is an Employee and Why Does it Matter?
- Workplace Privacy, an Increasingly Important Issue in the Information Age
- Vicarious Liability: When Employers are Responsible for Employee Conduct