Crafting a balanced restrictive covenant
No matter their size, scope or age, successful businesses rely on the strength of their contracts and employee agreements for a solid organizational foundation. While it is natural for the organization to slant the language in their favor, this can make certain provisions unenforceable. It is not uncommon for restrictive covenants to become too restrictive to be legally viable.
Executives often put restrictive covenants in place to protect the best interests of the business. This can range from trade secret protection to a former employee working for a competitor. Unfortunately, many owners become overzealous when drafting these agreements and can hurt themselves if business litigation ever becomes necessary.
What can an organization do to ensure the restrictive covenant is not too restrictive in the eyes of the court?
- Protect a specific interest: Restrictive covenants are in place to protect specific interests such as a recipe, a process enhancement or other types of trade secrets. When a business attempts to place restrictions on vague concepts such as experience, industry knowledge or general understanding, the court will likely find the contract unreasonable and thus invalid.
- Set reasonable time durations: Restrictive covenants generally specify a duration in which they are effective. The duration is typically two years. Relying on a duration longer than two years or including vague language about the duration could lead the court to find this provision unreasonable and unenforceable.
- Avoid any sort of ambiguity: It is easy to fall into traps while drafting any type of contract. One trap is the reliance on industry jargon or undefined terms. Any instances of jargon, lingo or acronyms must be defined to the satisfaction of all parties. Relying on vague language to create intentional gray areas could ultimately invalidate the provisions in the contract.
It is reasonable for the business to put restrictive covenants in place to protect themselves. Unfortunately, certain strategies can invalidate the contract making it difficult to win a legal battle centering on these documents. Drafting a balanced contract can prevent elements of the provision from becoming unreasonable.