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ARTICLE · 04 JUNE 2014

Include Restrictive Covenants In Equity Grants? Why Not?

Many companies require all new hires to sign restrictive covenant agreements (e.g., non-compete, non-solicitation, confidentiality and non-disclosure).

United StatesEmployment and HR

Many companies require all new hires to sign restrictive covenant agreements (e.g., non-compete, non-solicitation, confidentiality and non-disclosure). While the enforceability of such provisions varies by state, courts often take a dim view of such agreements (particularly those with non-competes), and are reluctant to enforce provisions that are not reasonable in duration, geography or scope of duties. Courts may find these provisions overbroad and contrary to public policy because they are seen as limiting the employee's ability to earn a living without being narrowly tailored to the employer's legitimate business interests. See, e.g., Home Paramount Pest Cos. v. Shaffer, 282 Va. 412, 718 S.E.2d 762 (2011) (striking down a non-competition agreement that the court had upheld 22 years earlier, by holding that the provision no longer was narrowly tailored to protect the employer's legitimate interests).

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