Employees can damage a company’s competitive advantages or finances even after they leave their positions. They can unfairly compete against a former employer or release information that the public otherwise wouldn’t know.
Employment contracts help mitigate some of the risk that comes from bringing on new workers. Restrictive covenants can help companies feel more confident about giving a new hire access to information about how the company operates or other key trade secrets.
Successful organizations have long used restrictive covenants to prevent unfair competition and other forms of misconduct after a worker leaves their job. However, changing laws and policies at the state and federal level have raised questions about restrictive covenants. Are they still a viable solution for modern employers?
Every state has different rules
Recently, the Federal Trade Commission (FTC) attempted to prohibit noncompete agreements in employment contracts at the national level. Judges eventually overturned that policy.
Currently, noncompete agreements are enforceable in most states, including Nevada. Employees who start competing businesses or take a job with a competitor could face litigation for violating the terms of their employment contract. However, some states, including California, have prohibited the inclusion of non-compete agreements in standard employment contracts.
California has also adopted limitations on nondisclosure or nondisparagement clauses. In cases where companies have workers sign agreements while settling claims of misconduct, enforcing those agreements later may not be an option.
There are alternative solutions available if a restrictive covenant isn’t an option. Business leaders may need help evaluating different protective contract inclusions and preparing for enforcement litigation, and that’s okay. Learning more about state and federal statutes can help companies optimize the protections included in their employment contracts.