Staying a step ahead of the competition is vital to the growth and success of your company.
Restrictive covenants, such as non-compete, non-disclosure and non-solicitation agreements, can protect your business. However, using them without legal guidance can do more harm than good.
Understanding restrictive covenants
Restrictive covenants in employment contracts prevent employees from using your company’s information to benefit your competitors. Common examples of restrictive covenants include:
- Non-compete: A non-compete clause prohibits an employee from establishing or working for a competing business after leaving your company.
- Non-disclosure: NDAs prevent employees from disclosing confidential information.
- Non-solicitation: A non-solicitation agreement prevents former employees from soliciting your company’s clients or employees.
When applied correctly, a restrictive covenant safeguards sensitive and confidential information.
Using restrictive covenants effectively
Before including any kind of restrictive covenant in an employment contract, consider whether it is necessary and appropriate. Generally, in order to be enforceable in Pennsylvania, the contract must meet these conditions:
- The restriction must be relevant to the employer-employee relationship.
- The employee must receive something in return for agreeing to the restriction. For prospective employees, this usually means a job offer, but for current employees, you should offer a raise, promotion or another benefit in exchange for signing the contract.
- The restriction must be necessary to protect the company’s legitimate business interests.
- The terms of the restriction must be reasonable.
Legal guidance is essential when drafting employment contracts. If the restrictions are too broad or unreasonable, you may find yourself with no legal recourse when an employee violates the contract.
When used effectively, restrictive covenants protect your business and ensure that you maintain an edge over the competition.