PUBLICATIONS

Introduction: Employee restrictive covenants, such as noncompetition and nonsolicitation agreements, are one of the most commonly used tools for protecting business interests. However, they are also among the most frequently challenged. Courts tend to treat these agreements with skepticism because they can limit a person’s ability to earn a living, and judges will not enforce a restriction that goes further than necessary to protect a legitimate business interest. That trend is accelerating, as states from California to Minnesota have enacted outright bans on noncompetes, the Federal Trade Commission pursued rulemaking to curtail their use nationwide, and even some employer-friendly jurisdictions have tightened their requirements. If your restrictive covenants contain any of the drafting flaws below, a court may refuse to enforce them, leaving your business with no protection at all.

Top 10 Reasons Your Restrictive Covenant May Not Hold Up in Court

1. Your Noncompete Violates the “Janitor Rule.” A covenant that prohibits a former employee from working for any competitor “in any capacity,” including in roles that are in no way competitive with their prior employment, is likely unenforceable. If your noncompete prevents your employees from working as the janitor for your competitors, the agreement is likely overbroad. This is the so-called “janitor rule.”

• Fix: Limit the restriction to roles that are actually competitive with the employee’s former position or that would involve use of the employer’s confidential information.

2. Your Nonsolicitation Covers All Company Clients. A nonsolicitation agreement that prohibits contact with “all clients” likely overreaches. Courts routinely strike these clauses because an employer has no protectable interest in clients the employee never interacted with or serviced.

• Fix: Limit the solicitation restriction to clients with whom the employee had material, personal contact during a defined lookback period (typically the last one to two years of employment).

3. You Did Not Carve Out Clients the Employee Personally Brought to the Business. In some jurisdictions, a restrictive covenant cannot prevent a departing employee from soliciting those who became clients solely because of that employee’s preexisting personal relationships with them.

• Fix: Consider an express carve-out for clients who have an independent preexisting relationship with the employee.

4. Your Geographic Restriction Covers Every Company Office. A noncompete that prohibits working within 50 miles of each of the company’s 10 locations, when the employee only worked at one, sweeps far beyond any reasonable protective measure. Courts generally find such restrictions unreasonable because the employer has no interest in preventing competition in markets the employee never serviced.

• Fix: Tie the geographic restriction only to the specific location or territory where the employee actually worked or managed customer relationships.

5. The Duration Is Longer Than the Interest It Protects. A five-year noncompete protecting customer relationships that would naturally turn over in 12 months is disproportionate. Courts weigh the duration against the realistic “shelf life” of the information or relationships at stake, and restrictions exceeding two years frequently fail.

• Fix: Match the duration to how long the protected information or relationship actually retains competitive value. In many jurisdictions, two years is the maximum. 

6. You Added the Covenant After Hiring but Gave the Employee Nothing in Return. In some states, continued employment alone is insufficient consideration to support a restrictive covenant signed after the employee has already started work.  

• Fix: Provide meaningful new consideration at signing, such as a bonus, promotion, equity grant, or increase in base salary, or present the covenant before hiring.

7. The Employee Had No Access to Trade Secrets, Confidential Information, or Key Customer Relationships. A restrictive covenant must protect a legitimate business interest. Preventing ordinary competition or shielding a company from a skilled former employee’s talent and abilities is not a legally valid reason for a noncompete. If the departing employee never had meaningful exposure to proprietary information or client relationships, it is likely the covenant will be unenforceable.

• Fix: Ensure that each employee bound by a restrictive covenant actually possesses or had material access to the information or relationships the agreement purports to protect.

8. In Some Jurisdictions, One Overbroad Clause Can Kill the Entire Covenant. “Blue-penciling” means a court rewrites an unreasonable and unenforceable restriction to make it reasonable and enforceable. In some states, blue-penciling is limited or not permitted. In those jurisdictions, if even one clause is overbroad, the entire covenant may fail.

• Fix: Draft every clause to be independently reasonable on its own terms, include a severability provision, and never assume a court will fix your drafting for you.

9. Your Choice-of-Law Clause Tries to Override the Protections of a Pro-Employee State’s Laws. Selecting the law of an employer-friendly jurisdiction will not help when the employee lives and works in a state that bans or heavily restricts noncompetes. Courts in these states will apply their own statutes, regardless of the terms of your contract.

• Fix: Do not rely on a single choice-of-law clause to govern employees in multiple states. Draft jurisdiction-specific agreements that comply with the law where each employee actually works.

10. Your Covenant Does Not Satisfy Your State’s Notice, Salary, or Procedural Requirements. A growing number of states impose statutory preconditions on noncompetes, such as requiring minimum salary thresholds, voiding noncompete agreements for employees earning below an annually adjusted income level, and requiring advance written notice signed by the employee. Failing to satisfy any of these requirements, where applicable, renders the covenant void.

• Fix: Track the procedural and eligibility rules for every state where you employ restricted workers. Provide the required advance notice, confirm salary thresholds, and include any mandated garden-leave provisions before the employee signs.

Impact and Recommendations

Businesses that rely on form restrictive covenants deployed uniformly across their workforce face significant risk. Therefore, companies should audit their existing agreements against the issues identified above, tailor each restriction to the specific employee’s role, access, and geography, and consult qualified employment counsel before implementing template agreements in multiple jurisdictions.