Restrictive Covenant Drafting: Ten Tips to Avoid the Traps

Non-Compete, Non-Solicit, Restrictive Covenants

Tip 1: Choose your choice of law wisely and FIRST.

  • The law you choose to apply to a restrictive covenant is regularly outcome determinative in enforcement proceedings (e.g. Illinois’ rule on at-will employment as consideration, North Carolina’s rule on blue-penciling, Louisiana’s law on geographic scope, Florida’s statute on presumptive validity, etc.) 
  • And there are sometimes three or four states from which to pick:
    • where the employer or seller is located (state of incorporation or principal place of business)
    • where the employee or purchaser is located
    • where the place of performance is located.  
  • So take the opportunity to pick the law that is most likely to do what your client already presumes will be done: your restrictive covenants will be enforced.
  • Relatively speaking, Delaware –often the default state of incorporation– is a solid and defensible choice.

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Ohio Non-Compete Law Applied To An Illinois Employee Under Choice-of-Law Clause

Non-Compete, Ohio, Illinois, Choice-of-Law

Variations in non-compete law from state to state can be frustrating for employers with multi-state workforces. A restriction that works in one state might be invalid in another.

A common fix is to include a choice-of-law clause designating a state that favors enforcement of non-competes, but the enforceability of such clauses also varies widely in different jurisdictions. That’s why the Northern District of Illinois’ recent PCM Sales, Inc. v. Reed decision enforcing an Ohio choice-of-law clause against an Illinois employee is a big win for employers. Continue reading