Restrictive covenants are a common feature of many commercial agreements. These covenants are designed to protect the interests of the parties involved by preventing certain actions that could be harmful to the business. However, there are times when these covenants may be challenged or deemed unenforceable. In this article, we will discuss the enforceability of restrictive covenants in commercial agreements.

What are Restrictive Covenants?

Restrictive covenants are clauses in a contract that prevent one or more parties from certain actions. These clauses are often included in commercial contracts to protect the interests of the parties involved. Some common examples of restrictive covenants include non-compete clauses, non-solicitation clauses, and confidentiality agreements. Non-compete clauses prevent an employee from working for a competitor for a certain period of time after leaving the company. Non-solicitation clauses prevent employees from soliciting clients or customers after leaving the company. Confidentiality agreements prevent employees from disclosing confidential information about the company.

Enforceability of Restrictive Covenants

The enforceability of restrictive covenants in commercial agreements varies depending on several factors. Courts typically view restrictive covenants as a restraint on trade and will only enforce them if they are reasonable and necessary to protect the interests of the parties involved. The following factors are considered when determining the enforceability of restrictive covenants:

1. Geographic Scope: The geographic scope of the covenant must be reasonable. A non-compete agreement that prevents an employee from working in the same industry across the entire country is unlikely to be enforceable.

2. Time Period: The time period of the covenant must be reasonable. A non-compete agreement that prevents an employee from working in the same industry for 10 years is unlikely to be enforceable.

3. Nature of the Business: The nature of the business and the position of the parties involved are also considered. A non-compete agreement for an entry-level employee may be considered unreasonable.

4. Consideration: The covenant must be supported by adequate consideration. In other words, the parties must receive some benefit in exchange for agreeing to the covenant.

5. Public Policy: The covenant must not violate public policy. For example, an agreement that prevents an employee from working for a competitor in the healthcare industry may be deemed unenforceable if it restricts access to medical care.

Conclusion

Restrictive covenants are an important tool for protecting the interests of the parties involved in commercial agreements. However, their enforceability depends on several factors, including the geographic scope, time period, and nature of the business. In order to ensure the enforceability of these covenants, it is important to work with an experienced attorney who can draft an agreement that is reasonable and necessary to protect the interests of the parties involved.