Restrictive covenants represent an agreement between two parties, typically between an employer and an employee. Understanding these agreements is essential when attempting to protect your business interests, but can often be confusing due to their technical language and complexity.
In this blog post, we will help explain what a restrictive covenant is. So if you’re curious to know how a small business attorney in Phoenix can draft such documents effectively let’s jump right into it.
What Is A Restrictive Covenant?
A restrictive covenant is a legal agreement between an employee and an employer that restricts the terminated employee to protect the business interests of a corporation. The purpose of a restrictive covenant is to protect the interests of one or more of the parties involved by restricting them from engaging in certain activities that could harm them.
For example, a business might use a restrictive covenant to prevent its former employees from starting a competing business.
When To Use A Restrictive Covenant In A Commercial Contract?
It is a contractual clause that limits the activities of one or more parties to the contract. A restrictive covenant will typically set out the specific activities that are restricted. As well as the geographical area in which they are prohibited.
They are designed to protect the interests of the contracting party. By ensuring that the other party does not unfairly compete with them after the contract has been terminated.
In general, for a restrictive covenant to be valid, it must meet certain requirements. It will be valid if:
- It protects a legitimate business interest.
- The contract must also be communicated to the other party so that they are aware of their restrictions.
- The agreement must be in writing, and it must identify the activities that are restricted.
- It must also be reasonable in scope, meaning that it should not be overly burdensome on the party that is restricted.
Different Types Of Restrictive Covenants
Take a look at the different types that your business lawyer can draft and enforce to protect your business:
1. Non-Competition
It prohibits one party from competing with the other party in a particular market or industry. It prevents an employee from leaving the company and starting a competing business.
2. Non-Solicitation
It denies one party from soliciting customers or employees of the other party.
3. Non-Dealing
It stops one party from doing business with the other party’s customers or suppliers. This clause prevents a supplier from dealing with a competitor’s customers.
4. Non-Poaching
It restricts one party from poaching employees of the other party. It also prevents an employee from poaching employees from their former organization.
5. Non-Disclosure
The clause prohibits one party from disclosing confidential information of the other party. It is included to discourage an employee from disclosing confidential information about their former employer as well.
Role Of A Business Lawyer In Draft And Enforce Restrictive Covenants
Businesses use restrictive covenants to protect their interests. A business lawyer can draft and enforce a restrictive covenant to protect the business’s trade secrets, customer base, and other confidential information.
A small business attorney in Phoenix can help enforce a restrictive covenant if the other party breaches the agreement. This can help to protect the business’s interests and prevent any damage to its reputation or bottom line.
How Does It Work?
A business lawyer can help you draft an appropriate restrictive covenant agreement tailored to your specific needs based on the law in your jurisdiction. The lawyer advises you of any potential issues or risks that could arise when enforcing the covenant. Such as claims of wrongful termination or breach of contract.
Additionally, the attorney can provide advice on how to enforce the agreement if one of the parties violates it, for example by filing a lawsuit or seeking an injunction to prohibit any further violations.
Contract Preparation Tips
Contracts outline the terms and conditions of a transaction and can help to protect in the event of a dispute. When preparing a contract, it’s important to make sure that all the important details are included. Here are a few tips for business owners:
- Make sure the contract is specific
- Use templates
- Have a lawyer review the contract
- Keep a copy of the contract
Conclusion
Covenant agreements are legally binding contracts that prevent employees or other individuals from divulging confidential information or engaging in competitive behavior. For a restrictive covenant to be valid, it must be reasonable in terms of geographic scope and duration. There are several different types of restrictive covenants, including non-competition clauses and non-disclosure agreements. A business lawyer can help you draft an enforceable restrictive covenant agreement tailored to your specific needs.
