Have you ever been asked to sign a restrictive covenant agreement for a new job and you don’t know what they are? Should you sign one or not?
If you’re in the sales, marketing, technology, or transportation industry, etc., it’s not uncommon to be presented with one of these agreements before you start the job.
There are several types of provisions within restrictive covenant agreements that you may be asked to sign. What it looks like all depends on your position, the state you work in, and the industry and company you work for. It’s not a one-size-fits-all.
Here at Anderson Trucking Service (ATS), we talk to potential candidates about restrictive covenants so they know exactly what they are and how they’ll impact them before they sign them.
In this article, we’ll help clarify a few things:
- What is a restrictive covenant agreement?
- Why are they in place?
- What are the other types of provisions within the agreements you may be asked to sign?
What is a Restrictive Covenant Agreement?
A restrictive covenant is an agreement between an employer and an employee in which the employee agrees not to engage in certain activities that would harm the employer's business interests after termination or resignation of employment. It’s designed to protect the company, client relationships, its employees, and confidential business information.
To give you an example, a restrictive covenant could restrict the following:
- Disclosing or using confidential business information
- Soliciting current customers
- Working for a competing business
Restrictive covenant agreements are put in place to protect trade secrets, prevent employees from sharing sensitive information with competitors or the public, and safeguard valuable intellectual information. Valuable intellectual information can include investment in time, resources, and training to develop employees.
If certain information were to be released, it could put that company at risk or cause them to incur large losses. These agreements are designed to help ensure the current and continued success of the business. They also protect you as an employee.
These agreements have a scope and a duration, which explain the activities an employee would be restricted from and how long after the employee’s separation these restrictions apply. The agreement will remain enforceable for a set time period after the employee leaves the organization.
There are potential consequences for violating restrictive covenants. This can include legal action, financial penalties, damage to professional relationships, and possibly loss of employment with a new employer.
These agreements are common in a lot of industries — transportation included. It’s standard practice to protect the business, its strategies, customers, employees, and confidential information.
Additional Employment Agreements
Every company is different. Some positions may have a non-disclosure or non-solicitation clause, some may only have a non-compete agreement, and so on. It’s important to know what each of them is and what it means for you.
Non-Competes
Non-competes prohibit employees from working directly or indirectly with a competing business. The agreement generally includes a definition of what’s considered a competing business for that particular company.
Based on the state you’re in, non-compete clauses may still be enforceable. What a non-compete clause does is prevent former employees from joining a competitor and using or sharing insider information for an unfair advantage.
The duration is six months to a few years and it’s based on the type of business, industry norms, and the level of competition that particular business has.
Non-Solicitation Clauses
A non-solicitation clause prohibits an individual from actively soliciting clients, customers, or employees from their former employer for a specific period after leaving the company. This prevents you from directly or indirectly soliciting business from clients or customers you’ve had contact with or done confidential business with.
This comes with a duration and a geographical scope, which means it can be within a mile radius or geographical region within the country. The duration can vary from six months to a few years depending on the industry standard.
Non-Disclosure Agreements
Also called an NDA, a non-disclosure agreement is an agreement to ensure confidential information remains confidential.
The agreement will define what is considered confidential information to the business. This can include trade secrets, business plans, financial information, customer lists, product design, software code, customized training, or any other proprietary information that is generally not known to the public.
The duration of the agreement can be indefinite, indefinite for as long as the information remains confidential, or confidential for a specific period of time (such as five years or 10 years).
Applying for Jobs After Signing a Restrictive Covenant
At this point, you might be wondering if you have to share with a prospective employer that you have signed a restrictive covenant.
Best practices would say yes, you should let prospective companies know that you have a restrictive covenant in place with your current or past employer. It demonstrates transparency and integrity and shows that you’re forthcoming about any legal obligations that may affect your employment.
It also helps from a risk management perspective. It’ll help the prospective employer evaluate any legal risks associated with hiring you. If the prospective employer were to hire you, they could be interfering with an agreement between two parties (you and your current/past employer). This could create a legal risk for the organization so it’s best to let them know in advance.
While it’s your choice to disclose your restrictive covenant, doing so will help you avoid any future disputes, communication errors, or termination. For instance, disclosure can help the prospective employer understand if the covenant you’ve signed limits your ability to perform certain duties or work with certain clients or competitors. Together, you can make arrangements accordingly so you can work there without any legal issues.
It’s also a good idea to tell your current/past employer that you plan to go elsewhere so they can evaluate if you’re in violation of your agreement. For example, if you currently work in transportation and plan to work in a completely different industry in a different role, it generally will not be an issue. However, if you plan to go to another transportation company to do a similar role, you could be in conflict with your agreement.
Your current/past company can’t tell you not to take a job, but they can tell you that it’s a conflict.
When you communicate proactively with your current/past and prospective employer — and communicate that you plan to be upfront and comply with your legal obligations — you’ll help avoid potential conflicts.
Obtaining a Copy of Your Restrictive Covenant Agreement
If you want a copy of your agreement to show a prospective employer or to simply have in your personal files, speak to the human resources (HR) department. They’ll be able to get you a copy.
You can also ask for a copy of your personnel file. You have a legal right to access this.
Proceed with Confidence
Restrictive covenant agreements, such as non-compete and confidentiality agreements, play a crucial role in the professional landscape, especially in industries like sales, transportation, and marketing.
These agreements aim to protect a company's confidential information and maintain its competitive edge by preventing former employees from using insider knowledge to the company's detriment.
While these agreements can provide clarity and security for employers and employees, it's essential to fully understand the commitments.
Whether you're considering a new job or contemplating a career move, being informed and asking the right questions about restrictive covenant agreements is crucial for a smooth and successful professional journey.
This is just one of the many questions you should ask as a prospective employee. Check out this list of other questions you should ask in an interview. These 50 example questions will bring you clarity about the position you’re interviewing for.
