Restrictive Covenants in Employment Contracts And Covenants Not to Compete

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A restrictive covenant refers to a promise not to compete or solicit business.  Generally, this is used in business contracts with an employee.  In most scenarios, an employer will require the employees to sign these employment agreements at the outset of the career with a particular company.  When written well and enforced properly, restrictive covenants and covenants not to compete can be important for protecting business interests.  Not all states consider the enforceability of such agreements in the same manner.

An employer is placed at a great risk when trusting an employee to learn the tools of the trade and interact with critical customers.  In the short term, this can be extremely beneficial for business interests.  If the employee decides to strike out on their own, however, the original company can suffer devastating losses as a result of competition.  Without a restrictive covenant in place, the employee can freely compete with a former employer and company after that employee has left the company.

It is also possible that an employee planning a departure can do a great deal to prepare for their exit prior to actually announcing it.  For example, he or she might get financing from a bank or form a corporation.  These are just a handful of examples of what an employee headed towards the exit can do to set themselves up for success after departing your company.

What is a non-compete agreement?

The most restrictive form of covenant is known as a non-compete agreement.  These prohibit an employee from working for a competitor of your company for a specified period after they depart your business.  Another version of a non-compete that does not stretch as far is one that allow employees to take a job with a competitor but prohibits that employee from serving or reaching out to the ex-customers of the employer.

What is a non-solicitation covenant?

A non-solicitation covenant will prohibit the employee from contacting any customers of the former employer.  A non-disclosure agreement can protect the employer from the risk of information exposed by a former employee.  Finally, an assignment of intellectual property rights is used to give the employer the right to patent an invention that the employee develops.

When written properly, restrictive covenants can be critical for protecting a business and its owners from competition, the sharing of confidential information, and the loss of rights to inventions.  Hiring the right attorney to develop articulate and clear covenants is critical for success. 

Protecting Secured Creditor’s Rights in Bankruptcy

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There are several protections under Bankruptcy Code for individuals or groups that have supplied services or goods to a debtor on credit before a debtor’s bankruptcy filing date.  When done properly, a trade creditor can increase the chances of receiving a distribution from the bankruptcy estate by invoking these protections.  If the trade creditor does not take action, the debt might be defined as an unsecured claim.  There are several different ways in which a creditor can be protected during a bankruptcy case.

What is a Request for Administrative Expense?

The first protection is offered under Section 503(b)(9) and it is known as a Request for Administrative Expense.  If you have sold goods to a debtor within the 20 day period before the bankruptcy case is filed, you can apply for your claims to be considered an administrative expense priority.  This is only eligible for goods and not services.

What is a Reclamation Demand?

You may also consider the potential for a Section 546(c) Reclamation Demand.  This section is broader than the first example since it is expanded the goods sold in the 45 day period prior to the filing of the petition.  In this scenario, however, the rights of sellers to reclaim goods are often subject to prior interests of secured parties.  A reclaiming seller will have to file on time for the reclamation demand but he or she might also need to file an adversary proceeding to prevent the debtor from using the purchased goods or from commingling the goods with other supplies.

What is Post-Petition Assertion of Mechanics’ Lines?

Finally, another option for a secured creditor is the Post-Petition Assertion of Mechanics’ Lines.  States have all adopted laws regarding the protection of creditors whose labor, services, equipment or materials were used to improve the land of the debtor.

Even when a secured creditor takes all these steps, it is important that no other action is taking during the bankruptcy case to impair these rights.  For example, a debtor might take action to sell property free and clear of liens, and this sale would include mechanic’s liens.

From the perspective of secured creditors, there have been actions taken to protect their interests when a debtor files for bankruptcy.  When used properly by an experienced attorney, the provisions listed above can be extremely helpful in moving a case forward and having the interests and rights of the creditor at the forefront of a bankruptcy case.  A creditor must take action by speaking with a qualified attorney from the outset.

Employment Law and Mediation… A Compatible Match

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There are many different types of disputes that can arise in employment law, including ERISA benefit services, discrimination, wrongful termination, breach of contract, and even sexual harassment.  When these claims are initiated, the situation can be headed for costly and time-consuming litigation, which may not be the best scenario for either party.  The emergence of mediation in the employment law context has been growing over the last several years, offering valuable and successful venues for alternative dispute resolution for employers and employees around the country. 

Mediation is informal and confidential, which appeals to many individuals and groups involved in employment related disputes.  A neutral mediator works with both sides to get the facts of each party and lead the parties through a discussion of the primary issues in the dispute.  This approach is much less contentious than going through litigation, since the mediator doesn’t issue a decision about who is right or wrong.  Instead, the mediator works with the parties to help them generate their own solutions. 

The involved parties approach tends to create much more amenable results for all the individuals, since more creative opportunities are available when each party is working together civilly.  These solutions tend to be much more flexible than decisions handed down by a judge, and they also tend to better reflect the unique needs of each party.  In a sense, mediation can do a great deal of the work in clearing the air, allowing both parties to move past the tension and instead focus on generating fixes for the long term. 

It shouldn’t be surprising that parties going through employment mediation often reach conclusions much more quickly than courtrooms.  Scheduling is certainly a bonus benefit of mediation, but a trained mediator can guide the parties to a resolution in a much shorter span of time than it would take to go through litigation.  The entire process of mediation focuses on working together- rather than against one another- and the fair and efficient nature of this approach allows parties to focus only on critical issues. 

When parties feel as though they are being treated fairly and allowed to share their side of the story, it can help to relieve a lot of the tension associated with the initial arguments.  Mediation is incredibly beneficial in employment disputes because it helps to render a faster decision with input from all individuals.  Mediators can play a key role in leading employers and employees to resolutions.