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Consideration for employees signing restrictive covenants

On Behalf of | Jan 21, 2020 | employment agreements | 0 comments

The types of restrictive covenants available to you as a business owner in New Jersey include non-competition, non-disclosure and non-solicitation agreements. You can ask your employees to sign a restrictive covenant that meets these conditions: It is not injurious to the public, does not place undue hardship on your employees and protects your legitimate business interests. 

Signing a restrictive covenant means that the employees must give something up. To make up for what your employees willingly relinquish by signing the agreement, you have to offer them some consideration, i.e., something of value in return. Depending on when you ask your employees to agree to the restrictive covenant, the considerations that you offer may vary. 

Current employees 

An example of when you may ask a current employee to sign a restrictive covenant is when you offer a promotion with an increased salary and more responsibilities. In such a scenario, the raise in salary typically qualifies as adequate consideration. Generally speaking, however, continued employment alone is not sufficient consideration to offer a current employee in exchange for signing a restrictive covenant. You have to offer something new. 

Departing employees 

It is not very common to ask employees to sign a restrictive covenant when they depart from a company. This is because restrictive covenants must be voluntary, and it may be difficult to persuade the departing employee that signing the agreement would be beneficial. This is especially true if he or she is leaving by choice and already has another job lined up. 

However, if you are the one terminating the relationship with an employee, you may be able to persuade him or her to sign a restrictive covenant by offering a severance benefit for which he or she would otherwise not be eligible. 

New hires 

It is most common to ask employees to sign restrictive covenants when first hiring them. In this case, the offer of the job itself is sufficient consideration. The employee gains a new job at your company, with all the benefits and compensation that it confers. 

Always make sure that a restrictive covenant is to your employee’s benefit as well as your own. Otherwise, it may not be enforceable. 

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