Restrictive covenants are agreements that define a party’s capability to take specific actions. In business and employment law, the most common of these are non-compete, non-disclosure, and non-solicitation. Generally, these covenants are part of an employment agreement, and the purpose is to restrain the employees’ ability to start a competing business or work with a competing company.
The non-compete agreement is used to restrict an employee from leaving a company and starting their own rival business, in immediate proximity to their previous company, and within a specified period of the employee’s date of departure from the company. In Florida, an employer is required to have a legitimate business justification for the restraint, for instance, safeguarding exclusive customer lists. Non-compete agreements may exist separately, or they can be inserted into a comprehensive employment agreement.
A non-solicitation agreement is a covenant by an employee not to attempt to persuade the employer’s customers, prospects, clients, or employees, to leave the company and engage in work with the employee or a competitor. The non-solicitation agreement, usually for a limited time, begins after the employment relationship ends. Non-solicitation agreements cannot stop customers, clients, and employees from leaving willingly. It can only check the impact that a past employee may have to shape that decision.
A non-disclosure agreement, also referred to as a confidentiality agreement, prohibits the employees and independent contractors from disclosing any confidential information they receive during their employment. Non-disclosure agreements serve companies to protect information that is important to their market standing, and competitive position, from getting into the hands of their rivals to be used against them in favor of the competitor.
The non-disclosure agreement lawfully prohibits an employee from disclosing crucial information received while in the employment of the company, therefore preventing other companies from employing them only for that reason.
Are These Agreements Legally Enforceable?
The restrictiveness of non-compete, non-disclosure, and non-solicitation agreements establish if the contracts are enforceable in court and whether or not the restraint on the employee is logical. The law differs from state to state when determining what is regarded as a valid business purpose and what restrictions are deemed justifiable.
In New York, restrictive covenants may be enforced when they are reasonable in terms of duration and the geographic area they cover. The restraints on the employee are necessary to protect the employer’s lawful business concerns and not be unfairly detrimental to the general public. They should not be unreasonably difficult for the former employee.
In Florida, an agreement that has a legitimate business purpose will be enforced, but it is up to the person bringing the case to prove that purpose. There are specific time limits that are deemed to be reasonable.
These restrictive covenants are vital in a continually changing competitive business environment where confidential information protection is becoming more critical.
Nevertheless, companies cannot force extensive restrictions on all employees, especially if the primary purpose is to deter workers from exploring different employment opportunities. Only those constraints that are strictly necessary to protect the interests of the business may be included in the restrictive covenants.