Signing an employment contract can be one of the most exciting moments in your career. But there is something very important you must know about restrictive covenants before you pick up the pen. Employees who are too eager to sign contracts that contain restrictive covenants in employment can jeopardize their ability to earn a living in the future.
Today I’m going to talk about restrictive covenants in an employment contract.
You’d be surprised what an employer can buy when an employee signs their employment contract. Every day, employees agree to very serious and limiting obligations, obligations they must keep even after they’ve left the company, in exchange for compensation.
There are two types of restrictive covenants commonly found in employment contracts. I’ll first be talking about the non-competition clause and next we will be moving on to the non-solicitation clause. The duration of restrictive covenants may exceed the length of time you are entitled to termination pay or pay in lieu of reasonable notice of termination.
The first type is a non-competition clause. Employers use a non-competition clause in their employment contracts to prevent an employee from competing in the same business as the employer within a certain geographical area and a period of time.
Generally, the law abhors non-competition clauses because they are a restraint on trade. The non-compete clause must protect the employer’s legitimate business interest and have a minimal impact on the employee. If the court finds the non-competition clause to be “overbroad” or too extreme, the court won’t just reduce the length of time and geographical area, instead, it will strike down the non-competition clause from the employment contract and treat it as if it was never there.
That said, even if the non-competition clause is overboard and likely to get struck down by the court, this does not mean there are no consequences to signing the employment contract containing it. Consider this scenario, after leaving your position, you were able to find new employment. However, upon receiving a cease and desist letter from your former employer, your new employer decides to terminate its employment relationship with you. Even though your new employer has already been advised that the clause is unlikely to be upheld, you may end up losing a new job again because of the contract you signed in a previous job.
The second type of restrictive covenant you need to be aware of is a non-solicitation clause. A non-solicitation clause limits an employee’s ability to contact the former employer’s clients and employees. Compared to non-competition clauses, courts are more willing to uphold these clauses since they restrain the employee from directly interfering with legitimate business interests of their former employer.
Nevertheless, non-solicitation clauses can still be considered overbroad by courts. Especially if they prevent the employee from contacting the former employer’s clients with whom they had no direct contact, or prevent the employee from soliciting clients or employees for an excessive period of time after the employment ends.
Some courts have also clearly indicated that “solicitation” means asking for something, and have therefore allowed employees to accept business from clients of the former employer if the employee is approached by clients of the former employer rather than the employee making direct or indirect contact with their former employer’s clients or employees.
Before signing an employment contract, it’s important to have a lawyer review your contract and provide legal advice to you about the proposed terms and conditions of employment. This is especially important If you are a key employee, in senior management or an executive. These restrictive covenants may be more strictly enforced to protect your former employer’s business interests.
DISCLAIMER: The content of this article, and this website generally, is not intended as legal advice and cannot be relied upon as legal advice. To provide legal advice on your problem, a lawyer must first understand your specific situation.
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