Draft Restrictive Covenant Agreement

Skill: Post-Closing Restrictive Covenant Agreement Drafting

1. Subject-matter triage

• This task has two outputs: draft the operative restrictive covenant agreement first, then the memorandum that explains and justifies the drafting choices.
• If the source set contains more than one triggering relationship, jurisdiction, departure date, or pre-existing restraint, enumerate each before analysis and draft against each applicable scenario separately.
• If only one governing law or one triggering employment/relationship path is in scope, say so expressly and avoid blended analysis.

2. Failure modes the skill is correcting

• The total restraint period is not tested for enforceability when existing covenants and new covenants overlap or run consecutively.
• The agreement assumes a single governing law without addressing a forum, services-location, or residence-based enforceability challenge.
• Garden leave is drafted without a clear trigger, duration, pay treatment, and interaction with the restrictive period.
• The agreement omits a passive investment exception or states it too broadly to survive scrutiny.
• Contractor non-solicitation is drafted like employee non-solicitation without tailoring to relationship intensity or access to sensitive information.
• Cause-based and no-cause separations are treated the same even where the governing law or deal context calls for different covenant treatment.
• The memo describes risks but does not tie each drafting point to a specific enforceability rule and a concrete revision.

3. Legal frameworks / domain conventions that apply

• Acquisition-related restrictive covenants are generally analyzed under reasonableness principles tied to legitimate business protection; the core variables are duration, scope, and activity restriction. Use the controlling state-law standard that applies to the covenant.
• Where the agreement’s governing law differs from the work state, residence, or service location, evaluate whether the chosen law will be respected and whether another state’s restrictive-covenant limits may control under conflict-of-law principles.
• Where a prior covenant already binds the founder, the enforceability question turns on the cumulative restraint period and whether the new agreement extends or restarts the clock.
• Garden leave should be drafted with a clear invocation right, a definite leave period, and a defined compensation mechanic so the consideration analysis is transparent.
• A passive investment carve-out is typically limited to a small minority holding in a public company or comparable liquid market investment, subject to an express threshold.
• Independent contractor non-solicitation should usually be narrower than employee non-solicitation and tied to material contact, access to confidential information, or a similar relationship-based limiter.
• If termination for cause and without cause change covenant obligations, state that distinction expressly in the operative text.
• Cite the controlling authority for each legal proposition used in the memo, including the governing statute, regulation, or leading case for the relevant jurisdiction.

4. Analytical scaffolds

• Identify every restraint that could apply to the founder, including pre-existing covenants, side letters, equity-related restrictions, and any post-closing covenant in the draft package.
• For each restraint, assess: triggering event, duration, activity scope, customer/solicitation scope, geography if any, and whether the drafting is narrower or broader than necessary.
• Compare the governing law clause with the location of services, the founder’s residence, and the deal nexus; if they differ, analyze both potentially applicable regimes and explain the drafting implication.
• Review any garden leave language for an unambiguous trigger, compensation during leave, whether the leave counts toward the restricted period, and whether the memo should recommend express offset language.
• Check for a passive investment exception and confirm it is tied to a defined ownership threshold and market-liquidity limitation.
• Review contractor non-solicitation language for overbreadth; tailor it to contacts, responsibilities, or access rather than a blanket ban.
• Determine whether cause-based termination modifies the restrictive covenants; if so, align the operative clause and the memo so they match.
• For every substantive issue discussed in the memo, state the governing rule, the drafting risk, and the exact revision that should be made.

5. Vertical / structural / temporal relationships

• Treat temporal sequencing as central: pre-closing covenants, closing date, post-closing leave, and post-termination restraint periods may interact and should be mapped in order.
• If a pre-existing restriction already runs from a prior departure or prior closing, analyze how the new agreement affects the remaining run time instead of analyzing the new covenant in isolation.
• If the transaction documents contain multiple restrictive regimes for different roles or signing dates, keep them separate and do not average the terms.
• If the founder’s obligations change based on termination reason, preserve that distinction throughout the operative clauses and the memo.

6. Output structure conventions

• Produce the restrictive covenant agreement as a complete operative document with defined terms, covenant provisions, carve-outs, governing law, and standard enforcement language suited to the transaction.
• Then produce the drafting memorandum as a separate advisory document that addresses each material covenant issue with controlling authority, enforceability analysis, and a specific drafting recommendation.
• In the agreement, incorporate the recommended limitations and exceptions in the text itself; do not leave key protections only in the memo.
• In the memorandum, end with a concise Recommended Actions section that assigns each action to a role and ties it to the transaction timing.
• Draft both deliverables so they can stand alone in .docx form, with the agreement containing operative clauses rather than narrative summaries.