Executive restrictive covenants after the enforcement retreat

Restrictive covenants at senior level are drafted for a negotiation that will happen years later, usually in a week, usually in public. Most are drafted as though that negotiation will not happen.

The prevailing instinct is to seek the longest period the market will accept and rely on a court to reduce it if necessary. In jurisdictions that have grown less willing to enforce, that instinct now produces the worst available outcome: a covenant that neither deters nor survives.

What a covenant is actually for

The purpose of a senior covenant is rarely to stop an executive from working. It is to protect a defined thing — a client relationship, a confidential strategy with a shelf life, a team — for the period during which that thing remains vulnerable.

Once the question is framed that way, the period tends to shorten. A strategy that is stale in six months does not justify twelve. A client relationship that has been deliberately institutionalized may not need protecting at all.

Enforceability is a commercial variable

Boards ask whether a covenant is enforceable. The more useful question is what enforcing it would cost, in months of visible dispute, during a period when the business is already explaining a departure to its clients.

In a recent transition we advised on, the twelve-month covenant was unlikely to survive challenge and litigating it would have kept the departure in view for most of a year. A nine-month restriction was negotiated instead and observed without proceedings. The shorter covenant protected more.

Drafting that survives

Three habits materially improve the odds that a covenant is honored rather than litigated.

• Tie the period to something explicable — a sales cycle, a strategy horizon, a client review cadence — rather than to a round number.
• Draft non-solicitation and non-competition as separate obligations with separate periods, so a court reducing one does not disturb the other.
• Provide for garden leave that offsets the restricted period, which makes the restriction easier to defend and easier for the departing executive to accept.