What Are Non-Competes and Restrictive Covenants?

When you get a new job, you might have to sign a contract that has regulations regarding what you can and can't do. These regulations, called restrictive covenants, can be in effect while you work for the company and even after you depart. A non-compete clause is often one common example of a restrictive covenant.

Did you know non-compete agreements are regulated by law in many states, some of which are more restrictive than others? Such covenants seek to protect the business, secrets, and clients of a company. But for workers, they can feel confused or even unfair. According to the Federal Trade Commission, an estimated 30 million workers, or nearly one in five Americans, are subject to a noncompete.

As a business owner, you have dedicated a great portion of your life, time, and energy toward building a successful business. So having a legal representative who knows employee labor laws will work to your advantage. According to restrictive covenants lawyer Michelle Cohen Levy, restrictive covenants regarding employment can protect your business from the theft of trade secrets and other related matters.

Let’s learn what non-compete agreements and restrictive covenants are, what they mean for your career options, and how they affect the possibilities for the current employer.

Understanding Non-Compete Agreements

Entering into one of these imposes certain restrictions on your ability to work in a specific industry after leaving your previous job. 

These agreements tend to limit where and for whom you can work, including at a particular time in a given geographical area. You should check such agreements in most regions, as they primarily relate to trade secrets and client relationships in competitive industries. 

If you breach the terms of these agreements, you might be subjected to business litigation, where your previous employer could seek damages caused by your actions or possibly prevent you from working for a rival company. According to https://www.engels-janzen.com/, you can discuss the legal grounds of your unique dispute or claim with a business litigation and claims attorney.

It is better to be familiar with the employment provisions before entering into any agreement. The understanding of these concepts will assist in planning your career accordingly.

Types of Restrictive Covenants

Restrictive covenants have many types and are all aimed to serve company interests while putting restrictions on an employee.

Common ones include non-compete agreements, wherein you cannot work for competitors for an agreed-upon period after leaving the employing company.

In addition to these agreements, you might face a prohibition on soliciting, which involves reaching out to former clients and employees. Confidentiality agreements, or NDAs, are the third type. These tell you to keep business information secret.  

Under a non-disparagement agreement, an ex-employee would not say anything negative about their former boss after they left the company. You can become an expert in job contracts and the careers that go with them if you understand these types of agreements.

Whenever in doubt, always seek legal counsel on such obligations.

Legal Enforceability of Non-Competes

Knowing about the different types of covenants imposed and enforcing them can complicate the very application of non-compete clauses

Trying to interpret non-competes is challenging since their enforcement changes from state to state or even from jurisdiction to jurisdiction. Courts normally focus on whether the restriction was reasonable as to time, to the region impacted, and to the legitimate purpose it purportedly impeded.

When a non-compete clause is too broad in what it restricts one party from doing or restricts one party from acting in a very arbitrary way, it will more than likely be found unenforceable.

Some jurisdictions, like California, don't enforce non-compete agreements at all, while others only let them happen in certain conditions. Ask your lawyer if the non-compete clause is valid in your state every time.

Potential Impacts on Employees and Employers

Restrictive covenants usually work in favor of companies but give way to some fundamental issues from the employee's or the employer's perspective.

Restricting work choices might limit the options employees have for career building and force them to stay in jobs that they would rather leave. It also becomes tough for someone coming from a new position or industry, causing discontent and dissatisfaction. 

From an employer's perspective, enforcing these agreements requires enormous resources in terms of time and money. It can also lead to legal confrontations, distracting the business owner’s focus. Such restrictive agreements can discourage skilled individuals from joining you and inhibit your competition and innovations.

This elaborate matter pertains to a balancing act to protect the interests of both parties while giving them their chance. 

Alternatives to Non-Compete Agreements

For protecting its interests, a company may consider other alternatives alongside a non-compete agreement. One such alternative is enforcing a confidentiality clause that forbids unauthorized parties from obtaining sensitive information.

The companies can pursue an NDA that inhibits their employees from transferring proprietary information to the competitor. Incentives promoting loyalty can be another avenue, for instance, with bonuses rewarding long-term service or professional development opportunities.

Another approach may be nurturing a positive environment in the workplace. A supportive workplace reduces turnover and discourages employees from seeking outside opportunities. 

Non-solicitation agreements, which serve to prevent ex-employees from soliciting your business or employees, can strike a reasonable balance between your business interests and their career development.