Most successful businesses rely on an assortment of contracts to protect intellectual property, control business operations and manage key relationships. Organizations may have contracts with suppliers and service providers as well as lenders, landlords and employees.
Some of those contracts, including employment agreements and contracts with outside businesses, may include restrictive covenants. Restrictive covenants are contract inclusions that limit certain types of conduct during and after the business relationship. Those restrictive covenants help prevent intellectual property theft and unfair competition.
How do organizations enforce the restrictive covenants in their contracts?
Establishing valid agreements
The first step toward enforcing a restrictive covenant is to include it as part of a valid contract. Restrictive covenants require concessions on the part of the employee or outside party. They give up the right to share information, start competing businesses or solicit certain parties for work or business.
For those restrictive covenants to be enforceable, the contract itself must be valid. Both parties need to receive something of valuable consideration for the concessions they agree to in the contract. There may also need to be certain limitations integrated into the restrictive covenant. The courts typically do not enforce restrictive covenants that persist indefinitely or apply globally.
Documenting infractions
Enforcing a restrictive covenant requires proof that a violation occurred. Sometimes, the proof that a worker violated a noncompete agreement is available online. Their social media profile may list a direct competitor of their former employer as their current employer. They may be the founder of a new business in the same industry.
Other times, they may have begun dispersing information online that violates a nondisclosure agreement. Attempts to hire former co-workers or do business with certain organizations could also constitute violations of restrictive covenants such as nonsolicitation agreements. The company seeking to enforce a restrictive covenant usually needs proof that a violation occurred.
Providing an opportunity to remedy the matter
Another key element of restrictive covenant enforcement involves direct communication with the other party. Having an attorney send them a cease-and-desist notice invoking the contract they signed and informing them of any applicable penalty clauses could potentially lead to an abrupt cessation of certain infringing activities.
Organizations that reach out to a party in breach of the agreement can sometimes resolve the matter without going to court. That being said, following up on initial communications with a timely lawsuit may be necessary. If the other party does not resolve the matter willingly, initiating contract litigation may be the most effective means of resolving the issue.
Having support when drafting contracts, reviewing them after suspected violations and enforcing them through communication or litigation can help organizations protect their competitive advantages and intellectual property. Leadership within businesses may require support and guidance when navigating a contract issue that could damage a company’s competitive edge.