There are many different types of clauses that businesses may add to their contracts. Severability clauses help ensure that the contract remains enforceable even if a minor violation of the agreement occurs. Penalty clauses help motivate people to uphold their contractual obligations.
Restrictive covenants are also an important way for businesses to protect against misconduct, unfair competition and the disclosure of trade secrets. Many organizations add restrictive covenants to employment contracts. They can be useful in agreements with service providers or vendors who gain insight into a company’s operation through their relationship with the organization.
What is a restrictive covenant?
A restrictive covenant is essentially a contractual clause forbidding certain types of conduct. Restrictive covenants often include terms that remain in effect long past the end of the employment or business relationship.
The three most common restrictive covenants are nondisclosure agreements, noncompete agreements and non-solicitation agreements. The use of these clauses can limit the damage that outside parties can cause to a business.
Organizations can prevent employees from taking a job with a competitor or starting a competing business. They can prevent the disclosure of trade secrets online. Non-solicitation agreements prevent attempts by former employees or outside businesses to hire top talent or do business with key clients.
Restrictive covenants allow companies to access outside support or hire workers with reduced operational risk. Adding the right terms to custom business contracts can help protect companies from various economic threats. Restrictive covenants can be important inclusions when bringing in new talent or securing the support of an outside company that could learn non-public information about a business.