- posted: Oct. 20, 2023
- Business Law
Restrictive covenants are contractual clauses that limit a terminated employee's ability to work for a competitor or to solicit customers or employees from their former employer. Covenants can be valuable tools for protecting an employer's confidential information, trade secrets and other proprietary rights. Examples are non-compete clauses, non-solicitation clauses and non-disclosure clauses.
However, West Virginia courts will enforce restrictive covenants only to the extent that they are reasonable in scope and duration and are necessary to protect a legitimate business interest. A proper covenant prohibits taking information and experience gained during employment and using it to the employer’s disadvantage. But a covenant cannot be so broad that it serves as a penalty. West Virginia courts will consider the following factors to determine whether a covenant is enforceable:
- The scope of the restriction — The geographic area and duration of the restriction must be reasonable. A covenant that restricts the employee from working for any competitor throughout a wide area for an excessive length of time is likely to be deemed unenforceable.
- The legitimacy of the employer's business interests — The employer’s purpose must be to protect a definable interest. A restrictive covenant that simply prevents the employee from competing with the employer or soliciting its customers is likely to be found unenforceable.
- The reasonableness of the restriction on the employee — Reasonableness is judged in light of the employee's position and the circumstances of the employment relationship. A court is unlikely to uphold a covenant that totally prevents an employee from working in their chosen field.
West Virginia courts are reluctant to enforce restrictive covenants against certain types of employees who may find it particularly difficult to find new employment. These include employees who are paid low wages and employees with unique or specialized skills or knowledge that are not easily transferable. Restrictive covenants also may be disfavored for employees who are terminated without severance pay, since they may be unfairly hampered in searching for a new job.
Employers can take these positive actions to increase the likelihood that their restrictive covenants will be enforced:
- Narrowly tailor the covenant — The agreement should be related to the specific employee's position and the circumstances of the employment relationship. It should not go further than needed to protect the employer's legitimate business interests and should not be overly burdensome to the employee.
- Provide consideration — The covenant should specify the value that the employee will receive in exchange for signing the restrictive covenant, beyond the mere offer of the employment position. Consideration can be in the form of a salary increase, bonus or other benefit.
- Obtain advice of counsel — An experienced employment lawyer knows how to do deep research in order to make sure the covenant is reasonable based on the employer’s business needs and the industry requirements.
Pullin, Fowler, Flanagan, Brown & Poe, PLLC in Charleston, helps companies fashion effective and enforceable restrictive covenants under West Virginia law. Call us at 304-344-0100 or contact us online to learn more.