Running a business comes with plenty of challenges, and one of the more frustrating ones can be facing competition from former employees.
Thankfully, restrictive covenants in employment contracts can help protect your business from these threats.
What are restrictive covenants?
Restrictive covenants are clauses included in employment contracts that limit what an employee can do after they leave your company.
These clauses help protect your business by keeping your confidential information secure, preserving client relationships, and maintaining your competitive advantage.
Here are the main types of restrictive covenants:
Are restrictive covenants enforceable?
Restrictive covenants are often seen as restraints on trade, which means they are not enforceable unless they are considered reasonable. For a restrictive covenant to be upheld in court, it must:
Enforceability is not automatic and depends on the specific circumstances. Courts will consider factors like how long the restriction lasts, the geographical area it covers, and the ex-employee’s role within your business.
Tips for business owners
Be specific
Vague or overly broad clauses are more likely to be struck down in court.
Make sure your restrictive covenants are clear and focused on protecting specific business interests.
Review regularly
As your business grows and market conditions change, your employment contracts should be updated to reflect those shifts.
Keeping your restrictive covenants up to date ensures they remain relevant and enforceable.
Offer something in return
If you are introducing new restrictive covenants to an existing contract, it is a good idea to offer an incentive like a raise or a bonus.
This can help strengthen the enforceability of the covenant.
Restrictive covenants can be a powerful tool for protecting your business, but they are not foolproof.
Taking the time to understand how they work and ensuring they are properly drafted will give you the best chance of defending your interests against former employees.
If you are dealing with competition from an ex-employee or need advice on drafting or enforcing restrictive covenants, contact our expert team today for guidance.