ARTICLE · 05 JANUARY 2012

Protecting Your Competitive Edge - December 2011

Drinker Biddle & Reath LLP

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Restrictive covenants, such as non-competition agreements, are prohibited or disfavored under the law of many states.

United StatesEmployment and HR

Lawrence Del Rossi

Jeremiah Posedel

Restrictive Covenants in Executive Compensation and Severance Agreements

By Mark E. Furlane and Joseph C. Faucher

"Bad Boy" and "claw back" restrictive covenants in executive compensation and ERISA severance plans can be an important component of an employer's overall protection of its business from unfair competition.

Restrictive covenants, such as non-competition agreements, are prohibited or disfavored under the law of many states. Employers who wish to limit competition by employees or former employees may, however, be able to circumvent these state laws by adopting an ERISA-governed plan that incorporates a so-called "bad boy" clause, or certain state law-governed plans that offer employees a choice between competing and accepting the compensation offered under the plan.

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