MBT | McKay, Burton & Thurman, P.C. | Attorneys At Law

3 types of restrictive covenants that Utah employers utilize

On Behalf of | Oct 16, 2023 | Business Law

Companies have to protect themselves from inappropriate conduct from others, as well as unfair competition. One of the ways they do so is through carefully-negotiated contracts. Employment contracts can help significantly reduce the liability that a company risks when hiring new workers.

A contract will include numerous details that clarify the obligations of each party to the other. They can also include restrictive covenants that prohibit certain types of activity both during and after the worker’s employment at the company. There are three main types of restrictive covenants that employers add to their contracts to protect them from misconduct and unfair competition that are worth considering.

Non-compete agreements

The best-known restrictive covenant is also the most controversial. Non-compete agreements theoretically prevent someone from starting a competing business or taking a job with a direct competitor. Some states have total bands on non-compete agreements. Utah does not ban them, but it does limit their enforceability in a variety of circumstances. There are currently discussions to potentially ban non-compete agreements at the federal level, meaning that they may not be the best inclusion in new contracts and that their existing inclusion in employment contracts may necessitate renegotiation between employers and their staff.

Non-disclosure agreements

When people hear about non-disclosure agreements, the conversation often focuses on issues like sexual harassment. Non-disclosure agreements may not be enforceable in cases involving illegal conduct or abusive behavior. However, they can help prevent the disclosure of information about a company’s operations and its trade secrets. Companies may include non-disclosure agreements in contracts with service providers, vendors, customers or clients in addition to employee contracts.

Non-solicitation agreements

When one employee leaves a business, they could do a lot of damage afterward. For example, someone might copy a business’s client list and then actively seek to lure them away to a business that they started or a company that now employs them. Workers might also reach out to their former coworkers and try to get them to come work for the business that has hired them. Non-solicitation agreements, when properly worded, can prevent both types of unethical behavior that could affect a company’s staffing or its revenue.

Including the right types of clauses in employment contracts and other key organizational agreements can help businesses mitigate liability and maximize the accountability of others.