Restrictive Covenants

Employers are often surprised to learn that by default, there is nothing stopping their employees from resigning, going to the competition, and immediately pursuing their best clients. We can help you to remedy this by putting reasonable limits in place.

Confidentiality and Fiduciary Duties

Of course, all employees of a confidentiality / fiduciary duties, and somewhat higher level employees may have fiduciary duties which will further limit their ability to compete. The duty of confidentiality will prevent any employee from using confidential information for the benefit of themselves or other third parties. For example, they cannot use her knowledge of their former employers pricing strategy to deliberately undercut them, or their knowledge of when contracts will expire to strategically target their former customers.

However, if employers want to impose additional post-employment restrictions upon their employees, they will need to do so through contract. The 2 most common forms of restrictions are non-competition covenants and non-solicitation covenants.

Non-Competition Covenants

Any restrictive covenant will be subject to scrutiny, as courts are reluctant to unnecessarily interfere with an individual’s ability to earn a living. Any covenant will have to be outwardly and subjectively reasonable and justifiable. By default, non-competition covenants, which preclude an individual from taking any job in the same industry, will be seen as unreasonably restrictive and therefore, unenforceable. The employer seeking to enforce such a clause will have to show that it is reasonable in the circumstances. Even if a court agrees that circumstances warrant a non-competition covenant, the specific terms will be assessed in order to determine whether they are reasonable. These include the length of time, the geographic scope, and the scope of companies that would fall within the limitation

Non-Solicitation Covenants

Conversely, courts are more willing to enforce non-solicitation covenants. These covenants allow an individual to work for any organization, but preclude them from pursuing their former employer’s customers for a specified period of time. As a result, it does not shift the individual out of their chosen industry. Again, however, the employer seeking to rely upon such a clause will have to show that the terms are reasonable. In this context, the terms in question will typically be the length of time and the scope of customers or potential customers that are included.

It is critical to bear mind that courts will not “fix” clauses that they deemed to be unreasonable. In other words, if a court finds that a non-solicitation covenant of 6 months would be appropriate, but the one places for 4 months, they will not reduce it to 6. Rather, the clause will be Struck out in its entirety. As the Rolling Stones say, you can’t always get what you want, but you get what you need. This is the approach that the courts will take in determining whether a cause is reasonable.

How We Can Help With Restrictive Covenants

We will work with you in order to determine your needs and then put appropriate restrictions in place to protect your needs without going to file risking a finding that they are unenforceable. And if your former employee is breaching his obligations and competing unfairly, we can represent you, file a claim and, if warranted, seek an injunction to force them to stop.