Litigation: The restrictive covenant and proper formation for enforceability and protection

A restrictive covenant can be a valuable tool in ensuring that sensitive information is not turned against the company

Enforcing a restrictive covenant is perhaps the most straightforward example of how an emergency injunction may be necessary to guard against a potential injury. The purpose of a restrictive covenant is to prohibit another party from acting in a certain way. If they violate that covenant, then, in many cases, getting an injunction is the only practical way to prevent serious, and often irreparable, harm.

As a preliminary matter, a court will first examine whether the covenant was formed properly. The two determinations that it must make are whether the covenant was ancillary to the contract, and whether the covenant was supported by adequate consideration. For the first, a covenant, which is a naked restraint on competition, cannot, as a matter of law, be the sole or primary purpose of a contract. As for the second, as the covenant represents one party’s agreement to forego activity it could have otherwise lawfully done, it must be bargained for like any other enforceable contract. The courts have held that merely adding on a restrictive covenant to an employment agreement already in effect will not be enforceable. Exactly what constitutes adequate consideration will vary from jurisdiction to jurisdiction, however.

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Thomas Patterson

Thomas E. Patterson started the Patterson Law Firm in 2000. He has 32 years of experience preparing and trying lawsuits for businesses, professionals and entrepreneurs—often...

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