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Restrictive Covenants

Restrictive Covenant Attorneys

Financial professionals are often subject to restrictive covenants and other agreements (which may appear as a stand-alone agreement or clause within a broader employment contract) that limit their ability to commence employment at other firms and/or restrict or prohibit post-employment solicitation of employees and clients of the former employer for a period of time.

There are several types of restrictive covenants and/or agreements, including:

  • Non-disclosure agreement –prevents employees from using or disclosing an employer’s confidential information and trade secrets both during employment and for a limited time after employment ends.
  • Non-compete agreement – prevents an employee from competing with their employer for a period of time. Non-compete agreements are enforceable as long as they are reasonable in terms of their temporal and geographic scope, do not unfairly restrain the employee’s ability to work, and protect the employer’s legitimate business interests, such as trade secrets, confidential client lists, and goodwill.
  • Customer non-solicitation agreement – prohibits employees from diverting an employer’s clients while employed at the company and from soliciting an employer’s clients after the employee has departed from the company. Non-solicitation agreements are enforceable so long as they are reasonable and protect the employer’s legitimate business interests, such as the client’s goodwill or the employer’s confidential client information.
  • Employee non-solicitation agreement – prohibits employees from soliciting co-workers to leave the company. While courts generally require a time limitation on employee non-solicitation clauses, they generally do not require a geographic limitation.
  • Garden leave agreement – requires the employee to provide a specified, minimum notice of resignation before joining a competitor. During the notice period, the employer continues to provide full salary and benefits, but the employee need not come to work (i.e., he or she may tend to his or her garden) if the employer does not want the employee present in the workplace.
  • Forfeiture agreement – an employee forfeits certain deferred compensation or benefits if he/she chooses to engage in prohibited conduct, such as competing with the employer or soliciting its clients after employment. An employer may include forfeiture provisions in a long-term incentive plan, deferred compensation plan, or profit-sharing plan. Forfeiture agreements discourage employees from engaging in harmful competition without placing direct restraints on them. The enforceability of these agreements vary from state to state.
  • Equity clawback agreement –requires an employee to repay certain types of compensation (usually those acquired through stock, stock options or some equity equivalent form of deferred compensation plan) that were conditioned upon compliance with one or more restrictive covenants. An equity clawback is different than a forfeiture agreement because it enables the employer to recover benefits previously paid to the employee if the employee violates certain restrictive covenants.

Freiberger Haber LLP provides representation to financial professionals and/or their firms involved in employment disputes relating to restrictive covenants and similar agreements. Contact Freiberger Haber LLP for more information.

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