Employers devote substantial resources, in terms of both time and money, to develop proprietary products and services and to train employees. The primary tool employers use to protect their legitimate interests from competitor intrusion has been the employee restrictive covenant.
Employee restrictive covenants are generally two-party agreements between the employer and employee that govern the post-employment conduct of the departing worker. The enforceability of employer-employee restrictive covenants is generally governed by state noncompetition law, which asks a court to weigh the legitimate interests of the employer, the degree of impairment on the departing employee and the state’s interest in the free flow of labor. Restrictive covenants that violate state noncompetition laws are void and unenforceable, although in some states, courts are permitted to strike objectionable provisions or rewrite an offending restriction to render it enforceable.
In the recent past, there has been an increase in the use of employee restrictive covenants between employers. Employer-employer restrictive covenants sprang from the traditional employer-employee context and have evolved over time. However, unlike their employer-employee equivalents, these types of covenants may raise antitrust concerns for the following reasons: