Restraint clauses are a necessary item in most contracts with highly-placed employees and contractors. They set boundaries and protect the legitimate interests of a business.
However, before you rush to enforce a restraint clause in a contract when one of your former employees leaves and goes into business for him- or herself, pause and ask yourself a few questions first:
1. Do you have a signed agreement with the appropriate clause in place?
While you might think this is an obvious question, many idealistic entrepreneurs don’t think to put restraint clauses in their contracts until they’ve been burned at least once by a disgruntled former employee. Or, they don’t think to ask for a restraint clause from certain employees because they’ve been friends for decades or have a familial relationship.
You can’t enforce something that doesn’t exist, so do some checking before you send out any sort of cease-and-desist notice.
2. Has your business actually suffered any economic harm?
You don’t want to involve your business in unnecessary litigation. If your former employee isn’t threatening your livelihood by stealing your best clients away or trying to patent your ideas before you can do it, do you have a real reason to worry?
This is one of those things that you have to weigh against the potential cost of litigation to decide if it is worth fighting. The answer will depend heavily on the industry you are in and the circumstances.
3. Is your restraint clause actually reasonable?
Before the courts started clamping down on things, a lot of employers rushed to have their employees sign some pretty broad agreements. They restricted former employees from engaging in their trade pretty much anywhere for years at a time. Some of them were intentionally vague, hoping to cover all circumstances.
Courts today take a dim view of such clauses. If they were signed without proper consideration, that’s also a problem.
Review your agreement with that person to make sure that it is reasonable for your industry and clear. In addition, look through your records to make sure that you gave the employee proper consideration at the time. If the agreement was signed when the employee was hired, the job itself is considered consideration. If it was signed after hiring, your company had to give up something of value in return for that signature — or the agreement is invalid.
Source: FindLaw, “Non-Competition Agreements: Overview,” accessed March 30, 2018
