What types of promises can be included in restrictive covenants?
There are four types of promises that may be included in restrictive covenants. An employer may ask an employee to promise not to compete with one’s former employer, not to solicit clients of the former employer, not to recruit employees of the former employer, and not to use or disclose the employer’s confidential information or trade secrets. The level of enforcement of these covenants depends on the jurisdiction. Restrictive covenants are meant to protect an employer’s interests by reducing competition and reducing the movement of employees.
When are restrictive covenants enforceable?
In determining whether a restrictive covenant is enforceable, the court must balance the interests of the employer and employee. Restrictive covenants are enforceable when they protect legitimate business interests. Legitimate business interests recognized by the court include: protecting customer relationships, preserving goodwill, and preserving consumer relationships. Essentially, anything that could legitimately hurt the business The typical time restrictions that are considered reasonable for an employment contract are 1-2 years.
What is the Federal Trade Commission’s new regulation regarding Non-competes?
In January 2023, the Federeral Trade Commission (FTC) passed a new rule banning non-compete clauses in employment agreements. Non-competes are the type of restrictive covenant that prevents an employee from working in a certain position or geographic area for a certain period of time. The FTC determined that this type of restrictive covenant is an unfair method of competition and is harmful to workers. Noncompetes force workers to stay in their positions or to take positions at a lower pay grade when they leave their company and look for alternate jobs. Under the new rule, existing non-competes in employment contracts will no longer be enforceable, allowing employees currently subject to these covenants to seek new employment.
Are there alternatives to noncompete agreements?
Companies are able to protect their interests through trade secret laws and non-disclosure agreements (NDAs) which are both still enforceable. Both trade secrets and NDAs prevent former employees from sharing their employer’s confidential information. The new regulation is expected to have the biggest impact on workers considering leaving their jobs to seek new employment, as they will no longer be prevented from finding new employment in the same industry and geographic area. The FTC anticipates that this will encourage employers to retain employees by increasing wages and improving working conditions and benefits.
