Ten Fatal Mistakes Business Owners Make – No. 9: Failure to Set Up Reasonable Restrictive Covenants

Every evening at closing time, your employees walk out the door with your company’s most prized possessions – your intangible assets.  If everything goes as planned, they bring those assets back the next day intact.

Intangible assets account for more than 75 percent of the value of a publicly traded company; for smaller companies, that amount may be even greater.  Intangible assets are the essence of your business.  Your employees are the greatest threat to your intangible assets.

You can — indeed, you must — protect your intangible assets through a variety of specifically tailored means.  The law protects your trade secrets if you take reasonable steps to maintain the confidentiality of the information.  You also can secure your customer relationships and keep your employees from competing unfairly through proper use of restrictive covenants.

The law of restrictive covenants varies dramatically from jurisdiction to jurisdiction, so you need the advice of experienced legal counsel to properly draft and enforce your agreement.  In Arizona and in most other states, a carefully drafted restrictive covenant is critical to protecting your intangible assets.

Restrictive covenants take on many forms.  Non-solicitation agreements prevent former employees from contacting your customers and staff for a time after they leave your company.  The non-solicitation period allows you to renew and strengthen the customer relationship without your former employee interfering.

Confidentiality agreements protect your trade secrets and other confidential information.

Most states will enforce limited non-compete agreements if they are no broader than is necessary to protect your legitimate business interests.

Your ability to enforce a restrictive covenant varies widely depending on the nature of your business, the employee’s responsibilities and duties, and the legitimacy of the interest you seek to protect through the covenant.  In every situation, however, one thing is certain:  you must act before your intangible assets walk out the door.  You snooze, you lose.

Protect your business through narrowly tailored restrictive, and your business will boom.

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