Why Restrictive Covenants Fail to Protect Employers

May 13, 2019

Restrictive covenants are often the subject of intense scrutiny by employer and employee alike. Unfortunately, that scrutiny often occurs after the employment relationship ends. This is hardly the time to learn that the covenant you are banking on to protect your business is worthless.

The following are reasons why restrictive covenants often fall short:

  1. Using a shotgun instead of a rifle. A restrictive covenant must be specific. One must draft covenants to address the specific competitive threat a former employee represents. An employer can restrict competition that is unfair because the employee’s knowledge gives the employee or his or her new employer an unfair competitive advantage over other competitors without the benefit of that proprietary knowledge. However, an employer may not protect itself from competition that any stranger could give. Like a rifle, the covenant must hit the competitive threat bullseye and not accidentally include other fair forms of competition.
  2. Using forms. Despite that restrictive covenants must be specific to the employee or at the very least a class of employees with very similar duties, some employers find it hard to resist using a borrowed or copied form. It can be hard to slow down and invest in drafting a document that focuses on what happens at the end of employment when the parties would rather focus on getting employment started. Thus, the temptation is to grab whatever is handy and call it good enough.
  3. Using the same covenant for dissimilar employees. One size does not fit all. Even when an employer takes the time to have a solid contract drafted, problems can arise when an employer uses that contract for employees it wasn’t drafted for.
  4. Using a covenant as a sword instead of a shield. Employers must remember that the focus of a covenant is to protect the employer and not to intimidate or threaten employees. In some respects, good drafting requires counter-intuitive thinking because the narrower and more reasonable a covenant is, the more enforceable it becomes. Once again, the focus needs to be on the specific competitive threat the employee represents, and nothing more. Time periods should be made only so long as is necessary to ameliorate the unfair competitive advantage. This means that shorter restricted periods might ultimately provide more protection than longer ones.
  5. Allowing covenants to get stale. Job duties and businesses evolve and so does the law. It makes sense to routinely review any covenants in place and update them as appropriate.
For more information about "Why Restrictive Covenants Fail to Protect Employers," contact Dave McCormack at dmccormack@axley.com or 262.244.9093.