How to Use Restrictive Covenants to Protect Your Business from Competition

Restrictive covenants are effective tools that New York City business owners can use to protect the aspects of their business that matter most. From employees to methods of conducting the company’s operations, restrictive covenants can protect parts of a business that contribute directly to its success.

However, the effectiveness of a restrictive covenant does not necessarily mean it will withstand judicial scrutiny. Non-solicitation and non-disclosure agreements are closely analyzed by judges across New York City to ensure they comply with the law. These courts want to protect employees from unfair limitations on their ability to seek employment elsewhere. Additionally, ensuring that other businesses have an opportunity to succeed despite a competitor having a restrictive covenant in place is a relevant part of this topic.

What are the Types of Restrictive Covenants?

There are a range of types of restrictive covenants a company may attempt to engage with:

Non-Disclosure Agreements: prevent former and current employees of a business from sharing information that is either confidential or owned by the firm
Non-Compete Agreements: for a specific period of time after a person no longer works for a company, he or she is unable to work for a competing business
Confidentiality Agreements: prohibits disclosure of information specified within the agreement
Non-Solicitation Clauses: an anti-“poaching” tactic that prevents a former employee from taking clients from their former employer. Additionally, many non-solicitation agreements prevent the poaching of former co-workers from following that person to a new employer

Keeping a business competitive is the focus of a restrictive covenant. The key is finding a balance between overly broad restrictive covenants and covenants that do not offer robust protection against the loss of employees and ideas.

Avoid these Restrictive Covenant Problems

Restrictive covenants can provide tremendous value to businesses in New York City. The most effective covenants avoid the following commonly encountered problems:

Any restriction created by a company and agreed to by an employee must last no longer than two years. If a provision in a non-solicitation or non-compete agreement lasts longer than two years, there is a high likelihood that a court would strike it down if challenged by the employee.
Courts frown upon restrictions that are overly broad regarding where an employee may work after leaving a company. A restriction against working in Manhattan, for example, after leaving their former company may withstand judicial scrutiny. On the other hand, a restriction which bars an employee from working anywhere in the same industry within the United States would almost certainly be deemed overly broad and invalid.
As with any contract, ambiguous language tends to be construed against the party who drafted the agreement. In the case of a restrictive covenant, it would make sense to include specific language within the covenant wherever possible. Broad or ambiguous language would almost certainly be read in favor of the position advocated for by the employee.

Interested in Utilizing Restrictive Covenants? Contact Attorney Daniel Knox

New York City employment defense lawyer Daniel Knox represents businesses seeking to implement restrictive covenants in their employment practices. Contact our office today for a free case review and to learn more.