The terms included in an employment contract can help protect a business from liability and litigation. Employers clarify what wages and benefits they intend to offer, limiting the risk of employee litigation over unmet expectations.
Businesses can also provide clear insight into the standard of work that they expect the employee to conform to, which can reduce conflicts if they must establish a performance improvement plan or terminate the worker eventually. Employment contracts help clarify expectations and guide the working relationship between the employee and the business.
Companies may also choose to integrate restrictive covenants as a means of limiting certain potentially harmful behavior on the part of the employee. When used appropriately in otherwise valid employment contracts, restrictive covenants can be useful tools for businesses with trade secrets and other competitive advantages that they hope to protect.
What is a restrictive covenant?
A restrictive covenant is a clause added to a contract that limits certain activities. Frequently, restrictive covenants apply during the working relationship and for a set amount of time after the employment arrangement ends. There are three main types of restrictive covenants that employers may add to contracts with new hires or recently promoted professionals. Nondisclosure agreements prevent employees from sharing non-public information with competitors, news media or even people on social media.
Nonsolicitation agreements prevent people from trying to do business with a company’s clients or trying to hire their former coworkers when they start a competing business. Noncompete agreements impose restrictions on starting a competing company or taking a job with a local organization in the same industry.
Restrictive covenants may require enforcement
Restrictive covenants can be powerful contract inclusions, but they don’t automatically prevent misconduct. Businesses have to monitor the professional conduct of employees after they leave the organization for signs of violations.
With appropriate documentation, they can then go to court and ask a judge to enforce the restrictive covenant and any penalty clauses they may have included in the employment contract. Provided that the employment agreement is valid and the terms of the restrictive covenant align with state regulations, employers can hold former workers responsible for their violations of the contract.
Drafting customized employment contracts for different positions and departments can help protect a company from one of the biggest sources of legal exposure. Restrictive covenants are often important inclusions in employment agreements.