Post-employment restrictive covenants appear frequently in employment agreements across many industries. Despite their popularity with employers, few contractual provisions create more vexing issues of suitability and predictability of enforcement. The phenomenon flows from the inherent tension between an employer’s interest in protecting its business and an employee’s interest in pursuing his livelihood. In a series of six articles concerning restrictive covenants, of which this is the first, we seek to debunk the myths and disinformation that plague this area of the law, provide some tools and guidance to help navigate it, and shape reasonable expectations for the deployment and enforcement of these provisions.
To balance the tension between employers’ and employees’ interests, most jurisdictions which permit restrictive covenants examine whether they are necessary to protect a legitimate interest of the employer and are no more restrictive in scope or duration than is reasonably necessary to protect those interests so as to avoid undue hardship on the employee or an adverse effect on the public. Recognized protectable interests include preventing the misuse of trade secrets and confidential information and competition from “unique or extraordinary” employees. In addition to principals or senior executives with intimate knowledge of business plans and processes, “unique” employees can include individuals possessing goodwill associated with specific client relationships developed or enhanced with the employer’s assistance.