What is a restrictive covenant?

| Jan 7, 2020 | Blog |

A workplace discrimination issue in Michigan can take many forms. One area that has the potential for misunderstandings is the use of restrictive covenants when an employee leaves a place of business and finds a position with a competing company. Making the issue even more confusing is that several types of restrictive covenants exist. 

An article in the Michigan Bar Association describes four main types of restrictive covenants. The first, a non-competition provision, prohibits a former employee from competing against the former employer; this covenant typically covers a particular geographic area and/or a limited time frame.  A second restrictive covenant seeks to prevent the former employee from raiding the past company by trying to hire talent to come to the new company. A third area of concern is known as non-solicitation covenant, which aims to prevent a previous employee from seeking to lure customers of the previous company to the new company. The fourth type of restrictive covenant is a confidentiality agreement that looks to prevent a former employee from divulging information about his or her former place of business. The ability to enforce covenants may depend upon state law, which of course varies from state to state. 

Many states follow the reasonable rule when it comes to enforcing a restrictive covenant: if a covenant is deemed reasonable, the court may uphold it. However, changes do occur in this field of law, as a recent case in Indiana illustrates. An article in the National Law Review writes about changes to restrictive covenant rulings. The state’s appeal court recently ruled on a restriction that it deemed too broad, and it also ruled that non-solicitation provisions may cover future customers.