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The basics of restrictive covenants in employment contracts, pt 2

Restrictive covenants are often a necessary component of employment contracts. They can prevent former employees from poaching their colleagues, ensure company secrets remain private and restrict a departing employee's ability to compete with your company. 

In a previous blog post, we went over the three most common types of restrictive covenants. This post will conclude our two-part series on restrictive covenants in employment contracts by discussing a few more examples and examining a few potential complications. 

More examples of restrictive covenants

Restrictive covenants are not limited to non-compete, non-disclosure and non-solicitation agreements. Restrictive covenants can also be useful in several other business situations. For example, take partnership agreements and business sales.

When two or more businesspeople sign a partnership agreement, they may wish to include restrictive covenants that prevent a partner from forming their own company using the talent and knowledge obtained from the original company. The new owner may sometimes require restrictive language that prevent the previous owner from operating a business in the same field in the same geographical area within a certain amount of time.

Some complications with restrictive covenants

As useful as restrictive covenants may be, they can also have many complications. Some courts have refused to uphold contracts whose restrictive covenants were too broadly restrictive.

It is important to make sure an employment contract's restrictions do not restrain an individual's right to compete or solicit any more than is necessary to protect the lawful business interest in issue, such as company goodwill or the protection of confidential information. Courts have also ruled against employers whose restrictive covenants were skewed too far in the employer's favor. Because the laws regarding restrictive covenants can vary jurisdiction by jurisdiction, it is advisable to work with an attorney to craft an employment contract that will be enforceable in court.

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