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What makes a restrictive covenant too restrictive?

| Jun 24, 2021 | Business Disputes |

Any business will take steps to protect their own best interests in every type of contract they draft. When the language of the agreement slants too far in favor of the organization, though, it might become legally challenging to enforce the terms of the contract. There are some steps that can be taken, however, to ensure the restrictive covenants are not too restrictive.

While the use of restrictive covenants is a staple in business, in some situations, courts have invalidated specific terms of the agreement. In these cases, the punitive terms of covenant breaches are not enforceable. In general, employee agreements can contain covenants such as:

  • Non-solicitation clauses
  • Non-recruitment clauses
  • Non-compete clauses
  • Non-disclosure clauses

All these various forms of contractual agreements are based on three restrictive elements:

  • A specified length of time
  • A specified geography
  • A specified scope of knowledge

However, in their effort to protect the best interests of the organization, the business contract might be written to include terms that could be deemed unreasonable. If certain terms are considered unreasonable, then the restrictive covenant might be unenforceable. In short, the restrictive covenant is too restrictive.

  • Duration: Many organizations will impose a limit up to two years on the restrictive covenant. A longer period of time might make the covenant invalid.
  • Location: Too often, the geographic scope of the limitations becomes an issue in enforceability. The business might try to impose a larger distance than is enforceable.
  • Scope: It is dangerous to use vague or unclear wording when describing the limits you are imposing on the employee or former employee. It is acceptable to specify a recipe, formula or manufacturing process, but it is not acceptable to attempt to limit general knowledge or industry experience.

A restrictive covenant is a clause or contract that limits one party’s ability to complete some sort of action. Whether this action is centered on working for a direct competitor or recruiting former co-workers into a new business venture, the restrictive covenant is designed to protect the best interests of the organization over the employee. Unfortunately, the business owner might draft the contract to be too restrictive and, thus, unenforceable. It is wise to avoid drafting a restrictive covenant that is too restrictive.