What is an Example of a Restrictive Covenant?
Restrictive covenants (RC), generally, are clauses in a contract that restrict a person’s actions. They can apply to property, in which case the clause could restrict the use of land. However, for the purposes of this blog, we will discuss RCs in employment. RCs in employment are typically meant to prevent former employees from competing with the employer’s business. In Florida, the courts favor employers enforcing RCs over employees and is one of few states that allows an RC to be enforced against independent contractors.
What is the Purpose of Restrictive Covenants?
These covenants can be used to protect many different aspects of a business. Some examples of Restrictive Covenants are:
- Non-Competes: the most common RCs in employment agreements. Restricts former employees from working in similar employment for a competitor for a specified period of time after termination.
- Non-Solicitation: Restriction on a former employee from soliciting the former employer’s customers, clients, and suppliers for a period of time after termination of employment.
- Non-Dealing: Restriction on a former employee from dealing with the former employer’s customers, clients, and suppliers, regardless of which party approached the other.
- Non-Poaching: Restriction on a former employee from poaching clients from the former employer for a specified time. This can also apply to poach former co-workers.
- Non-Recruitment: Restriction on a former employee from soliciting other employees of the former employer for a period of time after termination of employment. Also known as Non-Poaching.
- Non-Interference: Restriction on former employee from interfering with former employer’s business. The restrictions include preventing the former employee from attempting to influence other employees to leave the employer.
- Non-Disclosures: Also known as confidentiality agreements.
Restrictions designed to keep someone from talking about or stealing proprietary information, trade secrets, inventions, or other information that gives a competitive advantage to the employer. - Non-Disparagement: Restriction on a former employee to not disparage or make any negative statements, written or oral, about the former employer
- Garden Leave Provisions: Under a garden leave clause, the employee promises to give a certain amount of notice to the employer in advance of the employee’s resignation from employment. In exchange, the employer does not require the employee to work during the period of the garden leave. The employee continues to be paid during the period and therefore is still an employee and cannot work for competitors. The period is typically 90 days or less. Longer periods run the risk of being challenged in court.In order for an RC to be enforceable, it must protect an employer’s “legitimate business interest.” In Florida those interests include without limitation:
- Trade Secrets;
- Confidential business or professional information that does not qualify as a trade secret;
- Substantial relationship with specific customers, patients or clients, or customer goodwill associated with an ongoing business;
- A specific geographical location or marketing area;
- Extraordinary or specialized training.
- Since the employee usually does not have much bargaining power when it comes to such covenants, the courts scrutinize these clauses closely. An RC cannot be drafted too broadly. In other words, the covenant must be reasonable in regard to time, territory, and otherwise reasonable considering the employer’s interests being protected. Thus, the extent of RCs must relate to the employee’s position and duties within the business. As a result, higher level employees may have more restrictions since they typically have access to sensitive information.
Tips:
- You should not use the same template for every employee since enforceability can depend on the employee’s position and duties.
- You should update the covenants as employees’ positions or duties change.
- Florida courts will presume that RCs for 6 months or less are reasonable, while RCs for 2 years or more are unreasonable.
- You should also split up the different covenants in the hopes that if a court does not enforce one, they may still enforce more provisions.
