Restrictive covenants arise so often in the ordinary course of business that practitioners regularly glaze them over rather than taking the time to ensure they are enforceable in the state or country that must enforce them. This poses a significant risk because of the key protections such covenants afford – protecting confidential information, preventing unfair competition or solicitation of employees and customers, and preventing disparaging comments. Laws for such provisions not only vary internationally, but also among the 50 US states. As a result, a party may end up with restrictive covenants that are not enforceable to the extent they expected, or worse, not enforceable at all. This article will help practitioners and businessmen navigate the complexities of drafting restrictive covenants by ensuring they comply with the global requirement of various jurisdictions, within the US and in foreign countries. This is accomplished by describing common types of restrictive covenants and highlighting differences between various state and international requirements in order for a practitioner to easily identify the key aspects in which to focus when preparing such provisions.

Types of restrictive covenants

There are a number of restrictive covenants available to firms. The non-competition covenant protects a company from the direct competition of a former employee or business partner for a specified period of time and within specified geographical boundaries. The non-disclosure/confidentiality covenant protects a company’s trade secrets, client information and other key information for itself and often its affiliates and customers. The anti-raiding/non-solicitation covenant protects a company’s employees, clients or customers from being poached by a former employee or business partner. Finally, the non-disparagement covenant serves to protect a company from any critical or negative statements made against it by a former employee or business partner.

Jan-Mar 2015 Issue

Eisner Jaffe