Restrictive Covenants in Employment Contracts and Covenants Not to Compete

A restrictive covenant refers to a promise not to compete or solicit business. Generally, this is used in business contracts with an employee. In most scenarios, an employer will require the employees to sign these employment agreements at the outset of the career with a particular company. When written well and enforced properly, restrictive covenants and covenants not to compete can be important for protecting business interests. Not all states consider the enforceability of such agreements in the same manner.

An employer is placed at a great risk when trusting an employee to learn the tools of the trade and interact with critical customers. In the short term, this can be extremely beneficial for business interests. If the employee decides to strike out on their own, however, the original company can suffer devastating losses as a result of competition. Without a restrictive covenant in place, the employee can freely compete with a former employer and company after that employee has left the company.

It is also possible that an employee planning a departure can do a great deal to prepare for their exit prior to actually announcing it. For example, he or she might get financing from a bank or form a corporation. These are just a handful of examples of what an employee headed towards the exit can do to set themselves up for success after departing your company.

What is a non-compete agreement?

The most restrictive form of covenant is known as a non-compete agreement. These prohibit an employee from working for a competitor of your company for a specified period after they depart your business. Another version of a non-compete that does not stretch as far is one that allow employees to take a job with a competitor but prohibits that employee from serving or reaching out to the ex-customers of the employer.

What is a non-solicitation covenant?

A non-solicitation covenant will prohibit the employee from contacting any customers of the former employer. A non-disclosure agreement can protect the employer from the risk of information exposed by a former employee. Finally, an assignment of intellectual property rights is used to give the employer the right to patent an invention that the employee develops.

When written properly, restrictive covenants can be critical for protecting a business and its owners from competition, the sharing of confidential information, and the loss of rights to inventions. Hiring the right attorney to develop articulate and clear covenants is critical for success.

If you have questions about restrictive covenants in employment contracts and covenants not to compete, please call Ms. Bonnie Hochman Rothell at (202) 293-8200 for legal advice. Ms. Rothell chairs Krooth & Altman's litigation group in Washington D.C. In addition , she has been sought to find alternative dispute resolutions to complex problems. Visit http://www.krooth.com/ for more information.

California Construction Contracts and Arbitration

It's a general piece of common wisdom that decisions rendered by a legally-empowered arbitrator are absolute and absolutely binding. The entire point of a binding arbitration clause, after all, is that it is binding. If the decisions of arbitrators were easily overturned in the courts, it would render the entire process moot.

In general, the supremacy of properly-invoked arbitration decisions is firm and unassailable. However, under California law there are two general situations where an arbitration decision can be reversed or invalidated. In the first, a decision rendered by an arbitrator can be invalidated if the decision is based on an illegal contract, regardless of whether the arbitrator or the parties involved were aware of the contract's illegality.

The second situation allowing for the invalidation of an arbitrator's decision or award is if that decision 'violates an explicit expression of public policy.' This is a more diffused situation requiring a deeper understanding of the underlying law. A good example of this is a case where an unlicensed contractor is paid for acting as a general contractor, which is prohibited under California law; a contractor must have a Class B License to build a commercial building. In a situation where a contractor without a Class B License is paid to perform construction, they are compelled by law to return all fees. If a dispute is brought to arbitration and the arbitrator decides instead that the contractor can retain all fees despite a lack of license, this decision can - and most probably would be - invalidated by a judge if the case were brought into the courts.

It is often mistakenly assumed that if an unlicensed contractor is paid for construction work in violation of the law, the entire contract between the parties is deemed illegal, also invalidating any decision rendered by the arbitrator, but this is often not the case. Simply paying an unlicensed contractor - even with full knowledge of their unlicensed (and therefore illegal) condition is generally not regarded as infecting the contract as a whole, and thus the contract is not deemed illegal. This is therefore not a valid reason to reverse an arbitrator's decision. In the previous example, if the arbitrator had decided to return all fees from the unlicensed contractor this decision would likely have been upheld and the argument of an illegal contract would not have carried the day.

A thorough knowledge of the laws governing both construction and arbitration is essential to have an effective outcome. When seeking an arbitration or mediation professional, make sure to vet their experience in both.

If you need legal assistance regarding California construction contracts, let John S. Preston help you determine the best way course of action. As an attorney and licensed real estate broker who has practiced in real estate law and securities law for more than 30 years, John can serve you as an expert arbitrator and mediator. Call 510-763-9131 or go to http://www.johnspreston.com/