Restrictive Measures in Employment Contracts: The use of covenants to protect trade secrets, customer goodwill and confidential information

Every company has information, customer goodwill, and other valuable assets that are considered both integral and invaluable to its success. Limiting the use of this information by employees and protecting goodwill after the term of their employment contract can be vital to the protection of a market position.

An accepted method of providing this protection is to include restrictive covenants in employment contracts, which are designed to prevent certain information being used by competitors while providing for damages should those agreements be breached. They should be clearly distinguishable from the obligation of loyalty, which is inherent to any employment contract.

The way restrictive covenants are applied differs between jurisdiction. For companies with operations in multiple locations, understanding this is of critical importance. It is also important to acknowledge that restrictive covenants will only be enforceable if they are deemed to be reasonable in terms of their scope and the fairness of the restrictions they place upon an employee.

With this in mind, IR Global brought six members of its Employment Law Group together to discuss restrictive covenants. The aim of the feature is to give members and their clients’ valuable insight into how these protections are applied across a range of jurisdictions. We also assess the enforceability of contracts containing restrictive covenants, options in the event of a breach of covenant and best practices to avoid any potential problems before they occur.

The following discussion involves IR Global members from the United States – New York and Nevada, France, England, Mexico and Australia.