Business owners rely on the strength of their contracts to form the foundation of the organization. From employment contracts to vendor agreements, business owners draft these documents to both encourage partnership and create rules that all parties must follow. It is common for a business owner to draft contracts that are tilted in favor of the needs of the company, but when the agreement is slanted too far toward one party it might become unenforceable.
When developing restrictive covenants such as nondisclosure and noncompete clauses, a company might make critical errors in their haste to protect their own business interests. Unfortunately, the court could deem contracts that are too restrictive as unenforceable and therefore invalid. There are three common challenges to enforceability:
- Duration: Contracts and restrictive covenants often enforce durations and timelines. In the case of noncompete and nonsolicitation agreements, durations usually fall around two years. Longer than that, however, and the contract runs the risk of being identified as too restrictive.
- Geography: Similarly, restrictive covenants often enforce a region as part of the agreement’s provisions. If the company attempts to list too large a geography or use vague language to define the region, the agreement could be unenforceable.
- Scope: When developing noncompete, nonsolicitation, nondisclosure and nonrecruitment contracts, the business must be careful to clearly identify the scope of the agreement. When attempting to protect a business process, for example, the organization must define the process. Using vague language or citing “general experience” as a restriction will likely invalidate the agreement.
It is natural for the business to take steps to protect themselves in all contracts and agreements. When drafting or reviewing any type of business contract, it is wise to thoroughly examine the document. Is the language too vague? Are the restrictions too sweeping? The contract will likely favor the business, but if it is too lopsided, the business owner runs the risk of invalidating their own agreement.