Any business, no matter how big or small, requires legal contracts. Five of the most common types of business contracts include:
- Non-disclosure agreement — a legally binding contract between two parties outlining confidential information or material that is not to be shared with a third party.
- Commercial lease — a legally binding agreement between the landlord (property owner) and the business tenant which outlines the obligations of both parties.
- Contractor agreement — defines the business relationship between client and contractor.
- Supplier contract — a legal agreement between a business and an external supplier to establish the delivery of a set of goods, products or services.
- Employee contract — outlines employment details, expectations and duties.
Employee contracts are one of the most essential contract types a business can have. One of the most common clauses they include are restrictive covenants, also known as “non-compete” and “non-solicit” covenants, which employers use to protect their competitive edge in their industry.
Since employers often share confidential information with employees, it’s crucial to include provisions in an employment contract to protect their private information and prevent future competition.
What is a non-compete covenant?
A non-compete covenant refers to the employee agreeing to not start or practice a business in a similar capacity in competition to their former employer. Although, non-competes must be reasonable to avoid interfering with the employee’s ability to earn a living.
Specific terms such as the length of time, geographic locations and restricted companies would all have to be justifiable to a court.
What is a non-solicit covenant?
A non-solicit covenant refers to the employee’s restrictions on soliciting clients, customers and employees of their previous employer for a certain period of time.
Courts are more likely to enforce non-solicit covenants over non-competes. Since this covenant only prevents individuals from soliciting customers and employees from their previous employer, it doesn’t restrict the individual from working in the same industry.
Are these covenants easily enforced?
Restrictive covenants are harder to enforce and require more assessments from courts as they can cause significant harm to employees and their ability to make a living. However, the more accurate, clear and reasonable the agreement is, the more likely it’ll be approved. That is why many small business owners choose to receive assistance from a small business lawyer, ensuring that their agreements are justifiable to the courts.
If you have any further questions about business contracts, please don’t hesitate to contact us today!