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The basics of restrictive covenants in employment contracts, pt 1

When you are creating an employment contract, it is sometimes necessary to lay out a few restrictions. For example, if an employee leaves your company, would you want him taking his knowledge of your confidential information and using it to compete with your business? How about if a former employee was to recruit your clients or customers to a competing company? Both of these scenarios could cost any company dearly.

That's why many employers include restrictive covenants in their employment contracts. In this post, we will discuss the three types of restrictive covenants. In our next post in this two-part series, we will go over some more examples of restrictive covenants and a few issues that may arise because of them.

1. Non-compete agreements

Non-compete agreements prevent an employee from starting a competing business. Whether non-compete agreement are enforceable and the standards for enforceability are governed by state law. But generally, non-compete agreements can only be enforced for a limited period of time--say, a number of months or a few years after the end of employment. These agreements are also usually restricted to a specific industry within a specific geographical area.

2. Non-solicitation agreements

In a non-solicitation agreement, a signatory is restricted in their ability to hire employees away from a previous employer. These agreements can prevent a former employee from poaching talent from your company. Non-solicitation agreements can also prohibit former employees from luring away your customers. These restrictive covenants are particularly useful if losing a few employees or clients could cause significant damage to your business.

3. Non-disclosure agreements

In a addition to restricitive covanants, contracts that prevent certain types of communications are called a non-disclosure agreement. Employers typically include non-disclosure agreements in employment contracts to prevent employees from revealing trade secrets or company practices. If this sensitive information is leaked, it could cause serious damage. If your business utliizes confidential information, you should usually include non-disclosure provisoin in your contracts.

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