Restrictive covenant is a general term for an agreement that restrains trade, which includes non-competition, non-solicitation and confidentiality agreements. Many employees are forced to sign such agreements as a term and condition of their employment.
A non-competition agreement is a contract that restricts the right of an employee to compete against his or her former employer after the employment relationship is severed.
Non-competition agreements are used by employers to prevent executives and employees from leaving and working for a competitor. Non-competition agreements are disfavored in New York. They are nevertheless enforceable if drafted properly, with a sufficiently limited scope and duration, and can be used to prevent an employee from working in his or her field for an extended period of time.
A non-solicitation agreement is a contract that restricts the right of an employee to solicit the customers and employee of his or her employer after the employment relationship is severed. This agreement can make an individual much less marketable and potentially expose him or her to liability if violated.
A confidentiality agreement is a contract that protects an employer’s proprietary information. Many companies are careful to protect their proprietary information in order to avoid providing their rivals an unfair competitive advantage. Companies are likely to seek to enforce a confidentiality agreement if their profits/market share decreases as a result of the disclosure of confidential information.
The breach of a confidentiality agreement can result in significant penalties and loss of future employment.
Many employees sign restrictive covenants as a condition of employment but do not pay close attention to the weight of the restrictions, which are for the most part only significant when the employment relationship ends. To understand and avoid the risks, employees should endeavor to understand the legal significance and enforceability of their restrictive covenants before beginning their next employment/business endeavor.