Q: I own a specialized business and was interested in asking my employees to sign agreements limiting their ability to compete against my company either on their own or by working for one of my competitors after their employment here ends. Is this something I can do and are such agreements enforceable?
A: Both employers and employees should know the basics about restrictive covenants, which often appear in employment contracts and are sometimes referred to as “covenants not to compete, or “non-competition” agreements. An example of a restrictive covenant is a contract provision that says, “For one year after the termination of the employee’s employment, the employee may not be employed, directly or indirectly, by a company engaged in the same business as the employer, within 10 miles of the business of the employer.”
While all employees owe certain duties of loyalty to their employers even in the absence of an agreement, restrictive covenants provide additional protection to employers who provide valuable training and know-how to employees that such employees are likely to use in any future employment, including for a competitor. Restrictive covenants enable an employer to keep a former employee “out of the market” for some speciﬁed period of time and in a speciﬁed location, allowing the employer a breathing period in which the employer does not have to face competition from the former employee and can instead devote its resources to continuing running the business and replacing the departed employee.
Often employers choose to combine a non-competition agreement with a non-solicitation and/or conﬁdentiality provision, which, in addition to limiting the post-employment opportunities of the former employee, prevent the former employee from soliciting customers and/or employees of the former employer, and from using “conﬁdential information” (usually deﬁned in that provision), which the employee learned while in the employ of the former employer, either for the employee’s own beneﬁt and for the beneﬁt of a new employer.