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Restrictive Covenants Toolkit
Practical Law Toolkit 4-523-8981 (Approx. 19 pages)
Restrictive Covenants Toolkit
by Practical Law Labor & Employment
| Maintained • USA (National/Federal) |
Jurisdiction neutral resources to help employers protect their trade secrets and other proprietary and confidential information and assets. For state specific resources, see State Restrictive Covenants Toolkit. For a 50-state comparison of non-compete laws and requirements, see Quick Compare Chart: State Non-Compete Laws.
Protection of employers' trade secrets, proprietary and confidential information, and other assets is imperative for all employers to remain competitive. Given that employees move between employers more frequently than ever before, employers must implement measures to protect their information and assets before they are compromised and follow up on any potential threats immediately. Threats can arise from:
- Employees with sensitive business information joining competitors. Whether the employment relationship ends voluntarily or involuntarily, a departing employee may attempt to use valuable trade secrets or other confidential and competitive information for personal gain or for the benefit of a new employer or other third party. Even if former employees do not have malicious intent, it may be difficult for the employees not to use their knowledge of the former employer's strategy or plans to compete against the employer.
- Solicitation of customers or clients. Departing employees often seek to move business from key customers or clients of their former employer to a new employer or business opportunity.
- Solicitation of key employees. Departing employees may attempt to solicit other key employees to join them at a new employer or in a new enterprise competing with the former employer.
In recent years, non-competes have been under increasing scrutiny by both federal and state legislatures and regulators. Despite a growing trend of state law restrictions on the enforceability of non-competes, the law in most states still generally affords employers the right to restrict post-employment competitive activities of employees, subject to a balancing test weighing the legitimate business needs of the employer against the right of the employee to earn a livelihood. There are many tools an employer can use at the outset and during the course of employment, and after employment ends, to protect their interests and restrict an employee's post-employment competitive activities. The law of each jurisdiction varies, however, regarding how and when restrictive covenants can be enforced, so it is important to check the law of the relevant jurisdiction to ensure enforceability of a restrictive covenant (see Non-Compete Laws: State Q&A Tool). For an up-to-date comparison of state laws, see State Non-Compete Laws Quick Compare Chart.
Note that in January 2023, the Federal Trade Commission (FTC) announced a proposed rule that would ban post-employment non-competes and, if finalized, would change the legal landscape significantly. For the latest on the FTC's proposed rule, see Practice Note, Non-Compete Agreements with Employees: FTC Announces Notice of Proposed Rulemaking on Non-Competes.
This Restrictive Covenants Toolkit provides links to resources with information on best practices for employers to protect their business against a loss of competitive advantage, both proactively, before a threat arises, and in response to a threat once it does arise. For state-specific resources, see State Restrictive Covenants Toolkit.
Articles
For state specific resources, see State Restrictive Covenants Toolkit.
For a 50-state comparison of non-compete laws and requirements, see Quick Compare Chart: State Non-Compete Laws.