A century ago, a company's assets were in the warehouse or the lumber yard. Iron. Steel. Wood. Coke. These were the building blocks of the Industrial Age, and a company's strength was based on how much it bought, sold and controlled. Company assets were protected by fences, dogs and Pinkerton detectives.

Today, a company's greatest assets are its ideas and its people. In the modern age, a company's strength is its ability to sell product and expand market share. To protect its most valuable assets, it must protect its ideas. The most effective protections use restrictive covenants.

Under the law, a company's client base, its talent and its confidential information are called “intangible” assets—items that cannot be banked or warehoused. If a company takes the proper steps, the law will protect those assets. The first step is to restrict the use of and access to confidential information through restrictive covenants.

Non-competition agreements prevent employees from sharing confidential information with an employer's competitors. For many employees, access to confidential information is so ingrained in their day-to-day jobs that employers can seek to limit employees' future employment with competitors.

An enforceable non-competition agreement recognizes that the employee's future employment can only be limited if the employee has access to confidential information, and that such limitation is narrowly tailored to the type of confidential information to which the employee had access.

An enforceable non-competition agreement is also limited to the most narrowly defined geographic area and limited to the most narrowly specified period of time following termination of employment.

For example, a sales representative whose territory includes home builders in the Washington, D.C., area may have detailed information on the purchasing practices of customers who also build in Charlotte and Atlanta. However, the employer may have competitors in Charlotte but not Atlanta, so a valid non-competition agreement for that sales representative could include Charlotte, but not Atlanta.

Non-solicitation agreements limit employees' choice of future customers. Like the non-competition agreement, the non-solicitation agreement must be narrowly tailored to prevent the former employee from using confidential information about customers in a new job.

For example, if the D.C. sales rep obtains confidential information about the purchasing practices of certain home builders, the former employer can prevent the rep from soliciting those customers. However, a non-solicitation agreement could not cover all home builders, such as those who were not customers of the former employer.

As a rule of thumb, non-competition and non-solicitation agreements are based on the premise that an employee should not be able to use confidential information obtained from the employer to directly harm that employer's current customer relationships.

However, the agreements cannot go beyond preventing the former employee from making a living, or from competing on equal footing with the former employer.

As with most contracts, restrictive covenants can be enforced in court. And it's vital that employers make sure such agreements are valid—and thus enforceable.

Enforceability varies from state to state. Some have laws defining what is permitted in restrictive covenants, but others rely on case law to define what is fair and foul. Because each state has its own rules, there is simply no such thing as a “one-size-fits-all” agreement.

Each must be tailored to the employer's business and the particular employee's responsibilities. In general, the enforceability of restrictive covenants rests on whether the covenants are reasonable. It is the burden of the employer to prove that any such agreement is reasonable from three perspectives:

To determine whether such covenants are reasonable, courts look to see if the restrictions are reasonable with respect to time, geography, and the activities prohibited. Though there is no magic number for the length of the restriction, enforceable agreements are usually limited to one or two years.

An enforceable agreement must also be narrowly tailored to protect the employer's confidential information. A logical connection between the terms of the agreement and the employer's legitimate business interests is critical.

The restricted activity must be carefully explained in any agreement containing restrictive covenants. Generally, an employer should limit the prohibitions to competitive activities that are the same or substantially similar to the activities the employee performed for the employer.

For instance, it would be reasonable for a Northern Virginia-based electrical distributor selling to the new home construction market to restrict its former sales representatives from selling in that market, and Charlotte or Baltimore if the company competes in those places.

But it would be unreasonable for that distributor to prohibit former employees from selling in Northern Virginia's heavy industrial market if the distributor does not compete there. Similarly, it would be unreasonable for that company to prevent its former sales reps from taking jobs as plumbing supply reps—even if the jobs are with competitors.

Prudent employers recognize that the most valuable assets are the ideas developed to make their businesses grow and thrive. But unlike the iron and steel of a former age, those assets can't be protected with fences and security systems—but a few sheets of paper can do the trick.