Restrictive Covenant Agreements

Most executives are familiar with covenants not to compete and their broad reach and control. Obtaining an understanding of a non-compete agreement is a critical and essential element of the Executive Compensation negotiation.

These agreements can have an adverse impact on the executive's ability to earn a living post employment with the previous employer. Failure to obtain a clear and concise understanding of this covenant can result in an extreme financial hardship, i.e. preemption of a lucrative employment contract following the departure from the previous employer.

Not all employers enforce covenants not to compete. There are several reasons, first, it is too costly enforce. But when company revenue hangs in the balance, this covenant has been used to prevent further economic damage.

Non-competition agreements generally provide that the employee cannot solicit, acquire for individual use any confidential company information for a period of years (1 to 3 years being enforced as reasonable), within a specific geographic scope and without restricting an ex-employee's ability to earn a living. It is the later element that usually sways the balance of equity in these cases. Special attention must given to the state laws in the jurisdiction of the agreements. Some states are more flexible in their approach to enforcing these restrictive covenants. Other states take a conservative approach that is more protective of business interests. In any case, courts must balance the equitable and pecuniary interests of both parties.