State courts vary in their analysis and treatment of restrictive covenants (see sidebar, right). Some courts do not allow non-competition or non-solicitation clauses in employment agreements except in very specific circumstances. Other state courts are more lax in their requirements. Some courts, such as those in Illinois, focus on the consideration exchanged for the restrictive covenant. An Illinois court recently found that there must be adequate consideration for a restrictive covenant to be enforceable. The court found that although the sole consideration for a restrictive covenant can be at-will employment, the at-will employment must be at least for two years following the signing of the employment agreement to be considered “adequate.” It is clear that states treat restrictive covenants in a variety of ways. Therefore, state-specific analysis is necessary.
What Can You Do to Protect Your Business?
An employer who decides to draft restrictive covenants into its employment agreements must have a carefully, narrowly drafted and individual-specific provision; a one-size-fits-all approach using boilerplate language will usually not work in the restrictive covenant context because of the stringent requirements that courts have placed on these types of provisions.
So what can you, as an employer, do to ensure the restrictive covenants in your employment agreements are enforceable? First, it is important to analyze state law, which will dictate whether restrictive covenants are enforceable and what type of language is permissible in restrictive covenants in that state. Second, it is critical to be precise in the activities that you are trying to limit your employee from undertaking in the future. Third, it is necessary to limit the scope of the activity to a reasonable geographic location. Finally, analyze state law to ensure the duration of the restrictive covenant is one that courts in that state have enforced before.
If you have any questions about the admissibility and enforceability of restrictive covenants in your state, contact an attorney to assist you in drafting restrictive covenants to effectively protect your practice.
Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins LLC. Contact him via email at [email protected].
Restrictions on Non-Compete Clauses
According to a 2016 White House report, Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses, non-compete agreements currently impact nearly a fifth of U.S. workers, including a large number of low-wage workers. The report states, “Because of the potential issues presented by some non-competes, there is a growing movement in states to take action to limit the misuse of non-compete agreements. Several states are banning non-compete agreements outright for certain sectors and occupations. This year, Hawaii banned non-compete agreements for technology jobs, and New Mexico banned them for health care jobs. Others have taken steps to limit the scope of non-competes. Oregon recently banned non-compete agreements longer than 18 months, while Utah limited the agreements to one year.”
