restrictive covenant

A promise which is negative in nature. For instance, as a condition of being offered an position, an employee may be required to enter into a restrictive covenant not to work with a competitor of the employer for a specified period after the termination of the employment contract.

Such covenants may be made to apply to contractors, and frequently extend to directors and employees of a corporate entity. Common instances of what restrictive covenants are designed to protect are:

1. the trade customers of the company;
2. the suppliers of the company;
3. any other legitimate business interest of the legal person seeking the covenant; and
4. goodwill and reputation of a company.

Restrictive convenants may be entered into by way of deed or contract. When such covenants go further than what is reasonable or necessary to protect the legitimate business interests of the person looking to rely on the clause imposing the negative obligation it will be a void and unenforceable as a restraint of trade. The policy behind this rationale is that persons and businesses ought not be prevented from competing freely against one another or otherwise impose constraints on rights that the public at large possess.

Usage: The restrictive covenant prevented the employee working with a competitor of the employer for a period of six months.

Related Words: contract; restraint of trade; garden leave; void; ab initio; breach of contract; agreement.