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restrictive covenant

A restrictive covenant is a legal obligation imposed in a contract.  Bascially, one party agrees not to do something as a part of the bargain that makes up the contract.

In the employment context, restrictive covenants can come in many forms, but the most common restrictions are non compete covenants, non solicitation covenants, and non disclosure covenants.

If you are a business owner or represent a company, you should carefully consider whether this type of restriction is needed for particular employees.  In many instances, these agreements afford an employer valuable protection against unfair competition.  The classic example is a high-level sales employee who has gained valuable information and contacts as a result of working for a company.  That said, many employers attempt to have employees sign non-compete agreements where there is no real danger to their business.

In many states, these agreements are difficult and costly to enforce.  This is particularly true where an employee is terminated for economic reasons or poor performance.

Perhaps the best question that an employer can ask themselves is whether they would pay an employee not to work, rather than have that employee work for a competitor.  The answer may not dictate whether you require a restrictive covenant, but it should shed light on the issue of harm suffered as a result of the competitive behavior.  Regardless, it would be wise for employers to include their demand for restrictive covenant early in any negotiation with a prospective employee.

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