Restrictive covenants have long been a powerful and useful tool for business owners. When used appropriately, they can protect your business, preventing your employees from leaving to go and work for a competitor or from starting a business similar to yours for themselves. It prevents you from having invested in training that benefits somebody else, and from losing valuable clients or trade secrets. Unfortunately, far too many employers have used them in a way that has been viewed as abusive, preventing employees from being able to advance or even to earn a living, and as a result the use of covenants not to compete has come under significant scrutiny.
Currently, the Federal Trade Commission under the Biden administration is taking a much closer look at non-compete agreements. There is currently a call for comment on a proposed rule that would ban their use and waive all agreements that are currently in place. Pending that final decision, businesses that want to provide themselves with the protection afforded by a restrictive covenant would do well to ensure that the three elements that they incorporate are written in a way that cannot be viewed as unreasonable or punitive.
A well-crafted covenant not to compete will include specifications on what kind of work cannot be pursued, a definitive time frame during which the work cannot be sued, and a defined geographic area in which it cannot be sued. The specifics may vary based upon the type of work that you are engaged in as well as the employee’s role within your organization. The more clarity you provide about what the employee can and cannot do, and the more reasonable the conditions that you set, the more likely it is that the covenant not to compete will be enforceable.
There are multiple terms that can be included within the covenant not to compete that will make it more likely that your employees will not breach your agreement. For example, including waivers of deferred compensation for those who leave to work for a competing employer can act as a powerful bar against somebody testing your resolve.
For more information on how your business can benefit from a covenant not to compete, contact our firm today. We can help you create an effective, enforceable agreement that will stand up in court.