Definition: In human resources, a restrictive covenant is a clause which limits an employee from seeking placement with his/her ex-employer till a certain time limit after leaving the business/organisation. A restrictive covenant started out as a legal term to govern land owners. It dealt with how a piece of land may be used and developed.
Description:
Types Non-compete agreements which state an employee cannot leave the workforce to join a competing business
Non-solicitation covenant - An employee cannot solicit or approach customers of his/her ex-business
Non-poaching covenant - An employee cannot approach his/her ex-colleagues to join a competing business
A restrictive covenant limits employees from soliciting or poaching customers of his/her ex-business using the information gained during employment.
However, in a legal sense, such a clause is null and void as it restrains free trade. Currently, employers have no recourse for protecting their business from ex-employees.
But in certain cases an employer may replace a restrictive covenant with a non-compete clause to address genuine business concerns in a limited manner.
A non-compete clause works well to protect things like confidential client information. Since it is not drafted as openly as a restrictive covenant, there is a higher chance it would be upheld in court, if challenged.
Further, to ensure that the legality of such an instrument cannot be challenged, an employer should make sure to:
Mention the area in which this can be applicable and take care to ensure that the area of applicability matches with the geographic place of business/customer acquisition.
Limit the time period for which the restrictive covenant will be applicable. Generally, it is difficult to apply it for a period greater than a year.
Limit the number of activities that you are seeking to protect yourself from.
Clearly specify and justify the type of information being protected. Such information cannot be in the public domain. It should belong to the organisation seeking the limitations.
The organisation should also show that the employee against whom this injunction is being sought was involved in the collection or use of this information in some way.
The breadth of these clauses should be relative to the seniority of the person.
Ideally, an organization should review its restrictive covenants regularly to ensure they remain enforceable.
A legal effort to enforce a restrictive covenant can be long-drawn, difficult, and costly and so organisations should carefully consider the ramifications before getting into such an agreement.
Description:
Types Non-compete agreements which state an employee cannot leave the workforce to join a competing business
Non-solicitation covenant - An employee cannot solicit or approach customers of his/her ex-business
Non-poaching covenant - An employee cannot approach his/her ex-colleagues to join a competing business
A restrictive covenant limits employees from soliciting or poaching customers of his/her ex-business using the information gained during employment.
However, in a legal sense, such a clause is null and void as it restrains free trade. Currently, employers have no recourse for protecting their business from ex-employees.
But in certain cases an employer may replace a restrictive covenant with a non-compete clause to address genuine business concerns in a limited manner.
A non-compete clause works well to protect things like confidential client information. Since it is not drafted as openly as a restrictive covenant, there is a higher chance it would be upheld in court, if challenged.
Further, to ensure that the legality of such an instrument cannot be challenged, an employer should make sure to:
Mention the area in which this can be applicable and take care to ensure that the area of applicability matches with the geographic place of business/customer acquisition.
Limit the time period for which the restrictive covenant will be applicable. Generally, it is difficult to apply it for a period greater than a year.
Limit the number of activities that you are seeking to protect yourself from.
Clearly specify and justify the type of information being protected. Such information cannot be in the public domain. It should belong to the organisation seeking the limitations.
The organisation should also show that the employee against whom this injunction is being sought was involved in the collection or use of this information in some way.
The breadth of these clauses should be relative to the seniority of the person.
Ideally, an organization should review its restrictive covenants regularly to ensure they remain enforceable.
A legal effort to enforce a restrictive covenant can be long-drawn, difficult, and costly and so organisations should carefully consider the ramifications before getting into such an agreement.
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