Here at the Law Office of Vincent Miletti, Esq. and the home of the #UnusuallyMotivated movement, we take pride as a resilient and dependable legal services firm, providing such services in both a traditional and online, web-based environment. With mastered specialization in areas such as Employment and Labor Law, Intellectual Property (IP) (trademark, copyright, patent), Entertainment Law, and e-Commerce (Supply Chain, Distribution, Fulfillment, Standard Legal & Regulatory), we provide a range of legal services including, but not limited to traditional legal representation (litigation, mediation, arbitration, opinion letters and advisory), non-litigated business legal representation and legal counsel, and unique, online legal services such as smart forms, mobile training, legal marketing and development.

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As the authoritative force in Employment Law, we are committed to ensuring that we live up to our word by keeping you in the loop, informed, and enlightened about various legal and non-legal issues related to the labor law. Last week, we introduced a new series on “Trade Secret Misappropriation & Restrictive Covenant Claims,” through which we aim to provide you, as the employer, a hands-on guide into understanding how to enforce restrictive covenants and protect trade secrets. As mentioned in Part I of this series, restrictive covenants are of critical importance to employers. For this and other reasons, we found it necessary to provide you with the basics of restrictive covenants through an abridged series on the “Fundamental Aspects of Restrictive Covenants.” In that regard, this blog is Part I of this short series in which we familiarize ourselves with the basis of restrictive covenants. The fundamental aspects of interest in this series include permissible scope, time & geographic restrictions, protectable interests, and adequate consideration.

Let us now dive right in!

Definition of “Restrictive Covenants”

In line with the definition provided earlier in our blog adopted from the video titled “Restrictive Covenants Made Easy” and accessible at https://milettilaw.com/blog/f/restrictive-covenants-made-easy, restrictive covenants are contractual devices that employers may utilize to safeguard their employee, client, and customer relationships, trade secret, and other proprietary or confidential information, and other competitive interests. This means that through such a covenant, an employee’s ability to solicit employees and/or clients of the employer, complete with their employer, and disclose or use the employer’s trade secrets or other confidential information after termination is limited. However, in line with the five ingredients outlined in the blog mentioned above, there must be a balance between employees’ inherent right to pursue employment and or the limitations of a restrictive covenant upon the activities of employees. Employers are, therefore, required to be reasonable in their restrictions upon the employee irrespective of the views different states have on restrictive covenants.

When Does an Employer Require Imposing a Restrictive Covenant?

The “reasonability” of a restrictive covenant critically influences its enforceability. In most states, the reasonability test focuses on three factors: the restrictive covenant’s geographic scope, the covenant’s duration, and the scope of the prohibited activity. These factors are assessed against the purported legitimate interest of an employer to enforce the agreement. To protect the rationale for the imposition or the purported legitimate interest, a restrictive covenant must not be more restrictive than necessary. Otherwise, it will be considered an illegal trade restraint. It should be understood that restrictive covenants are not appropriate in all circumstances despite being a vital device that employers use to protect their business interests. Examples of factors that a restrictive covenant may depend on include:

  1. The reasonableness of the restrictions – courts try to strike a balance between the public interest in an employee’s right to work and an employer’s interest when evaluating restrictive covenants. Thus, the likelihood of a court ruling in favor of an employer depends on the degree of reasonableness of a restrictive covenant.
  2. The job duties of the employee – to an employer, a restrictive covenant would be more essential when imposed upon an employee with access to the employer’s confidential or sensitive information that would cause damage to the employer’s business if disclosed or used by external individuals and/or entities.
  3. The type of restrictive covenant – generally, the restrictiveness of covenants varies depending on the kind of covenant. For instance, employees have to bear greater burdens when imposed with restrictive covenants imposing non-competition obligations. On the contrary, since they only limit an employee’s customer or employee base but do not restrict the employee’s right to work, non-solicitation agreements are said to be more favorable. Nonetheless, while they may be subject to blanket enforcement across a company, restrictive covenants imposing confidentiality obligations are less restrictive.
  4. The type of employment – the use of certain restrictive covenants in various industries, such as the medical and legal fields, is usually prohibited under many state laws.
  5. The jurisdiction in which the enforcement of a restrictive covenant is attempted – state laws vary in their control and acceptance of restrictive covenants. For instance, while they are generally accepted only under extremely limited circumstances by laws such as Understanding California Restrictive Covenant and Trade Secret Laws, restrictive covenants are generally accepted in some states. This means that an employer must be aware of a state’s acceptance of these agreements before attempting to enforce them.
  6. The reasons for imposing the restrictive covenant – a restrictive covenant will only be upheld by a court if it has been imposed to protect some legitimate interest of a particular employer. Such legitimate interests include but are not limited to competitive interests, customer and client lists, or the trade secrets of the employer. Please, hit this link to read our blog to learn more about what information constitutes trade secrets under the applicable laws.

In Part II of this series, we will provide you with a hands-on guide on “Ensuring Restrictive Covenants are Adequately Considered for All”

In the interim, reach out to us with questions or comments on our website at the Contact Us page!

Always rising above the bar,

Isaac T.,

Legal Writer & Author.