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Restrictive Covenants in Business Contracts

There are generally three types of restrictive covenants in business contracts: (1) non-compete agreements; (2) non-solicitation agreements; and (3) confidentiality agreements. These restrictive covenants appear most frequently in employment agreements and, to a lesser degree, in independent contractor agreements; they also appear in other contracts such as agreements to purchase a business. Businesses include restrictive covenants in these contracts because they spend considerable time, money, and other resources developing their business relationships, processes, employees, goodwill, and confidential information, among other things, and justifiably want to protect their investments and interests.

This article provides a brief overview of non-compete agreements, non-solicitation agreements, and confidentiality agreements:

Non-Compete Agreements

Non-compete or non-competition agreements prevent a person from competing with a business. The restriction is limited to certain activities in a certain geographic area for a certain period of time. The enforceability of the restriction depends on its reasonableness and the state in which enforcement is sought.

Non-Solicitation Agreements

There are two types of non-solicitation agreements. One prevents solicitation of the business’s clients, and the other prevents solicitation of the business’s employees. While the protections afforded non-solicitation agreements and non-compete agreements overlap, there are some differences, and it is generally prudent for the business to include both in the contract. The enforceability of non-solicitation agreements also depends on their reasonableness and the state in which enforcement is sought.

Confidentiality Agreements

Confidentiality agreements or non-disclosure agreements prevent the disclosure of a business’s confidential information or trade secrets. Not only must the information actually be confidential or a trade secret, but the business must take reasonable steps to protect the information from unauthorized access or use.  

Johnsen Law has experience drafting, revising, enforcing, and defending the aforementioned restrictive covenants in multiple contexts. 

Contact Johnsen Law to learn more.

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