Restrictive Covenants

A restrictive covenant is a contractual limitation placed on employees and executives of a company that prevents the employee from competing with the company, using confidential information to the company’s disadvantage or soliciting the company’s employees and officers after leaving the company. Restrictive covenants provide the company (and investors) certainty that the founders and other key employees of the company will not leave the company and start a competing company to the detriment of the success of the company they left. A nonsolicitation provision provides that a departing employee (or in some cases a client or business partner) will not solicit other employees of the company to leave the company. A noncompetition provision provides that a departing employee (or in some cases a client or business partner) may not directly compete with the company by entering into a similar line of business in a certain geographic area. Noncompetition clauses in the employment context are subject to strict statutory limitations on the possible scope and duration and a careful review of state law, especially in West coast states, is require to ensure a clause is compliant. A confidentiality clause will subject an employee to an obligation not to disclose sensitive or proprietary materials after employment.