FISHER & PHILLIPS
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NON-COMPETE AND TRADE SECR ETS
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Non- Competes in Fixed Term Agreements: Special Care
Required
April 6, 2011 08:10
by Michael R. Greco
Special caution is required concer ning restrictive covenants that are anc illary to employment agreements
for a fixed term (as opposed to an em ployment agreement for an at-will em ployee). Whether such
covenants may be enforced could depend u pon: (1) written renewal of the em ployment agreement upon
expiration; and/or (2) the inclusion of language expressly stating that restric tive covenants contained in
the agreement survive termination of the agreement. Consider the following h ypothetical:
A senior executive signs an em ployment agreement providing her with a f ixed term of employment for two
years from the date the agreement w as executed. The agreement contai ns a restrictive covenant that
applies for one year following expirat ion of the agreement. Upon the expir ation of the two-year term, the
company is negotiating the terms of a new employment agreement with the ex ecutive. As sometimes
happens, the negotiations drag on f or a period of months, sometimes active ly, and sometimes not at all.
During this drawn out and ongoing peri od of negotiations, the executive cont inues to serve and is
compensated according to the term s of the expired employment agreement. Everyone seems to be
content with the status quo, and a year goes by. Ultimately, the negotiations fail, and the executive sets
out for greener pastures with a competitor .
