Non-Competes In Fixed Term Agreements: Special Care Required

Special caution is required concerning restrictive covenants that are ancillary to employment agreements for a fixed term (as opposed to an employment agreement for an at-will employee). Whether such covenants may be enforced could depend upon: (1) written renewal of the employment agreement upon expiration; and/or (2) the inclusion of language expressly stating that restrictive covenants contained in the agreement survive termination of the agreement. Consider the following hypothetical:

A senior executive signs an employment agreement providing her with a fixed term of employment for two years from the date the agreement was executed. The agreement contains a restrictive covenant that applies for one year following expiration of the agreement. Upon the expiration of the two-year term, the company is negotiating the terms of a new employment agreement with the executive. As sometimes happens, the negotiations drag on for a period of months, sometimes actively, and