“Restrictive covenants” is the collective term for contract provisions that prevent employees from competing with former employers after leaving the company or making use of confidential information obtained there.
According to the American Bar Association, there are many different types of restrictive covenants. Many may already be familiar to you, while others are more uncommon, at least in the United States.
Non-solicitation
If your employees sign a non-solicitation agreement, it means that they agree not to try to lure away your customers to do business with them instead. Non-solicitation agreements are usually only effective for a limited amount of time, but they apply to past, present and prospective customers.
Anti-raiding
An anti-raiding agreement is somewhat similar to a non-solicitation agreement. Where a non-solicitation agreement ensures that former employees will not poach your customers, an anti-raiding agreement prevents them from hiring away their co-workers upon leaving the company.
Non-competition
This type is very common but also the most restrictive. Upon leaving the company, your former employees agree not to compete with you for a specified period of time within a particular geographic area. Enforcing non-compete agreements can be challenging because of their restrictiveness, but it is possible to create one that should hold up.
Confidentiality/Non-disclosure
An employee may gain confidential or proprietary information about you, your company or your clients. A confidentiality agreement prevents him or her from disclosing or using that information. This applies to any information that is not publicly available even if it is not technically a trade secret. Some people use the terms “confidentiality agreement” and “non-disclosure agreement” interchangeably, but there may be a difference depending on the jurisdiction.
Restrictive covenants can be controversial, and some jurisdictions make them difficult to enforce. However, if they are not injurious to the public interest, impose no undue hardship and protect your legitimate business interests, they should meet the necessary standard of reasonableness.
