Many established business owners take great care to protect their company’s assets.  They invest in expensive alarm systems, purchase appropriate insurance, obtain professional accounting and legal advice and secure their computers with firewalls and virus protection. Yet some business owners fail to take proper steps to protect some of their most important investments—their confidential information and customer relationships.  Sadly, many business owners learn a difficult lesson when the value of the company they have worked years to develop is diminished after their key employees set up shop to compete with them.  Why does this happen? There is a common misconception among some business owners that restrictive covenant agreements with their employees, including non-competition, non-solicitation, and non-disclosure agreements, are not enforceable.  As a result, many small business owners decide that it is not worth their time to request such an agreement.  The result? The valuable employee they trained and introduced to their best clients is now their competitor.  Worse yet, the former employee is now capitalizing on relationships developed through the efforts and expense of their former employer.  In the absence of a contractual agreement, there is little a business owner can do to prevent a former employee from soliciting clients and other employees to join the former employee at his new company.  Types of Restrictive Covenants Contractual agreements that prohibit an employee from divulging confidential information learned on the job are called non-disclosure agreements.  While state trade secret laws may cover some confidential information even in the absence of a written contract, a non-disclosure agreement allows the employer to protect information that might not qualify as a trade secret under state law. Non-solicitation agreements are agreements that prevent employees from soliciting the business’s customers or the business’s employees for a period of time. Non-compete agreements prohibit the employee from working in a specific industry in a defined geographic territory for a defined period of time. Upholding the Agreement in Court It is true that the Courts have long had a dislike for restrictive covenant agreements.  The reason for this historical animosity is that it has been considered against public policy to enforce agreements that prohibit employees from making a living. In recent times, however, the courts have recognized that there are legitimate interests to be protected by enforcing these agreements and will enforce such agreements if they are carefully drafted. In order for restrictive covenant agreements to be enforceable, the courts will look at several considerations in evaluating whether or not to hold an employee to a contractual agreement with his former employer. First, the agreement must be supported by good consideration, such as an offer of employment, a promotion, or company stock. Some courts have held that continued employment can constitute valid consideration.  Second, the agreement must protect a legitimate business interest of the employer. Simply prohibiting competition is not a legitimate interest that will be protected. Restrictive covenant agreements are generally recognized as legitimate methods for protecting confidential and proprietary information.  Businesses trying to enforce these agreements must be able to show that the information they are trying to protect was in fact treated as confidential. Customer relationships, as well as a business owner’s investment of time and money in building the business are also considered interests that are worthy of protection. In Weber v. Tillman, 259 Kan 457,913 P.2d 84 (1996) the Kansas Supreme Court recognized that a physician’s investment of time and money in building his medical practice was a legitimate interest to be protected by a non-competition agreement. Third, the agreement must not create an undue burden on the employee. The agreement should be drafted so that it is not any broader than is necessary to protect the interests the business is seeking to protect by the agreement.  In this regard, non-solicitation and non-disclosure agreements may be looked upon more favorably than non- compete agreements because they do not keep an employee from working in a specific industry. Rather they simply prohibit the former employee from calling upon the employer’s customers and divulging confidential information. Fourth, the agreement must not be injurious to the public welfare. If enforcing a non-compete agreement between physicians would leave patients in a rural area without access to health care, the court will likely find that the agreement is injurious to the public welfare. Further, the agreement must be reasonable in terms of the geographic area and the length of time it is in effect.  The geographic scope should be no broader than is necessary to protect the business interest.  If your company mostly does business in a 10-mile area, a non–compete agreement with a geographic area covering two states is probably not going to be enforced by the courts.  Similarly, if the confidential information the employer is trying to protect consists of short term marketing plans of similar formation that is constantly changing and being updated, the covenant should be no longer than is necessary.  Additional Considerations Because restrictive covenant agreements must be carefully tailored to protect recognized legitimate business interests, businesses should avoid using “cookie cutter” and form agreements that they have found on the Internet or borrowed from a friend. Whether or not an agreement is enforceable depends upon the specific facts of the employers’ business and the employee’s job and the interests the employer is trying to protect.  Employers need to review their business operations with their attorney to determine a reasonable geographic and time scope. Finally, employers whose employees are subject to a restrictive covenant must remember that they can lose the protection of the contract if a court is persuaded that they have breached the agreement with the employee.  In Missouri, an employer will have difficulty enforcing a non-compete agreement if it has terminated an employee without cause, or materially altered an employee’s compensation structure. In one recent case, a Missouri court refused to enforce a non-compete agreement because the Employee has unilaterally changed the employee’s commission structure.  Restrictive covenants should be reserved for those employees who have access to truly confidential information or those who have significant customer contact. They should be no longer and no broader than needed in order to protect the interests for which the employer is seeking protection. Jennifer Kyner is a shareholder in the Overland Park, Kansas law firm of Kyner & Reefer, P.C. where she concentrates her practice on employment law issues and litigation, including the defense and prosecution of non-compete agreements. Her phone number is 913.481.3200. The firm website is www.kynerreefer.com <<Click here>> to download a printable copy of this article.