These clauses come from a broader category of what we call restrictive covenants. They are essentially anti competition tools used by many companies. They restrict people from doing certain things and addresses what happens after the contract is terminated or if employee leaves. One reason why this clause would arise is where companies invest a lot of time and money in certain processes that they want to safeguard from competitors.
When employees leave, companies want to make sure that those employees are limited in what they can take with them and use to compete against them in work with other companies or other competitors. Generally, when employees leave a company, those employees may use what they have learned in order to start up their own business or compete with another company using that same information. The non-compete clause prevents this information from being used against the previous employer and otherwise protects their competitive edge.
It’s a tricky area of law because generally speaking, anything restrictive is frowned upon by the courts. The courts recognize that there are some protections which should be afforded to the company for certain work product items. However, courts are very careful and reluctant to restrict people from making a living. As a result, courts are usually disinclined to enforce restrictive covenants that are overly broad in both geography and time, commonly referred to as scope. Sometimes, courts will disregard the clause even though it was agreed upon by the parties if the Court deems it to be too restrictive and overreaching.
For those who are faced with restrictive covenants, it is important to consult with an attorney because the covenant could be limiting your ability to make a living once you leave that company for a certain period of time and as a result, you should understand what your rights are.
But generally speaking, are they enforceable?
There is no general rule because the court will examine scope and duration. It’s more accurate to say, in theory, covenants are enforceable, but until an attorney or a court can take a look at how broadly or narrowly, they are constructed, it is impossible to answer in a general fashion.
What’s part of the restrictive covenant? Would that be trade secret protection or some kind of nondisclosure?
The court recognizes certain parts of what businesses create. In businesses that have specific manufacturing processes, formulas, or techniques that can be designated, the courts will more favorably look upon the protection of that specific type of information because those are things that were created by the company itself. Those kinds of company creations are more likely to be protected which go beyond public knowledge. As such, courts are much less likely to protect more generalized knowledge and information that is gained, and much more likely to protect specialized knowledge or creations that the company creates.