Analyzing Employee Restrictive Covenants During Government Contract Transitions
Article by: Nicholas Hopkins, Associate
Government contract transitions inevitably involve conflicting incentives.
The agency wants continuity of quality service. The successor contractor wants to retain experienced and knowledgeable personnel. The incumbent contractor wants to protect its workforce and business interests, and prevent its employees from strengthening a competitor. And the incumbent workers typically want to continue serving in their same roles with minimal disruption.
These interests collide when incumbent personnel are subject to restrictive covenant agreements. After losing a recompete, incumbent contractors will sometimes even warn their personnel in advance that they cannot join the successor contractor without breaching the agreement. In some cases, the successor contractor may receive similar warnings.
While certain post-employment restrictions are enforceable, government contractors should not assume that a restrictive covenant agreement will necessarily prohibit a worker from servicing the same government contract moving forward. Contractors on both sides of a transition should analyze any post-employment restrictions at issue and carefully assess legal risk.
Incumbent Contractors
After losing a recompete, an incumbent contractors may begin reviewing options to restrict its employees or independent contractors from continuing the same work with a direct competitor who won the recompete. A restrictive covenant agreement, signed by the employee or independent contractors as a condition of employment, seemingly provides a mechanism to achieve this. However, these restrictions are not always as effective as assumed.
Not Every Restrictive Covenant Agreement Includes an Enforceable Noncompete
One of the most common mistakes is assuming that any restrictive covenant agreement will bar incumbent personnel from joining the successor contractor.
Restrictive covenant agreements typically include at least the following restrictions. A noncompete provision generally prohibits the individual from providing services to a competitor. A customer nonsolicitation provision restricts the individual from soliciting business from a current or prospective customer. A confidentiality provision protects proprietary information. These restrictions are not interchangeable, and must be reasonable in scope and reach. The existence of one does not necessarily imply the existence or enforceability of another.
Similarly, incumbent contractors should be cautious about making broad statements that personnel are legally prohibited from pursuing opportunities with the successor contractor. In many cases, workers may apply for positions, participate in interviews, and evaluate potential opportunities without violating any contractual restriction. The more difficult question is whether the employee or independent contractor’s acceptance of a role with the successor violates an enforceable covenant. This can only be assessed based on the circumstances of the transition.
Following the Contract Does Not Equal Soliciting the Customer
When a federal agency independently awards a follow-on contract to a successor contractor, the customer has already come to a decision on where the work will go. In that context, there may be a meaningful distinction between a restricted employee or independent contractor actively soliciting government business vs. simply continuing to support work that the government has already re-awarded through the procurement process.
That does not mean customer nonsolicitation provisions are unenforceable altogether. However, it does mean that an analysis should focus on the specific language of the agreement and the actual conduct at issue rather than assuming that the provision bars the employee or independent contractor’s continuation with the successor contractor.
Government procurement policy has long recognized the value of workforce continuity during contract transitions. That reality should inform the evaluation of whether personnel are soliciting business or merely following work that has already changed hands through a government award process.
Post-employment Restrictions on Independent Contractors Risk Misclassification
Restrictive covenants involving independent contractors deserve particular attention.
Certain personnel can be classified as independent contractors where those individuals maintain a degree of independence from direct company control. Bona fide independent contractors typically have highly specialized experience that diverges from the core competency of the company and are free to operate their trade independently with other clients and customers.
Still, some companies attempt to impose broad restrictions on whom the contractor may work for, what customers they may serve, and what opportunities they may pursue after the relationship ends. While restrictive covenants are not necessarily inconsistent with an independent contractor relationship, aggressive attempts to control a contractor’s future business activities may undermine an argument that the individual is truly operating independently and is not the incumbent’s employee. Incumbent contractors should therefore consider whether its enforcement position aligns with how the relationship has been structured and classified.
Confidentiality Provisions Offer the Most Consistently Enforceable Protection
While incumbent contractors understandably focus significant attention on noncompetes and nonsolicitation provisions because they directly address competitive concerns, confidentiality provisions reliably protect sensitive competitive information.
Personnel departing for a successor contractor generally should not retain or disclose proposal materials, pricing information, proprietary methodologies, customer data, trade secrets, source code, internal business strategies, or other confidential information belonging to the incumbent contractor. Companies are almost always within their rights to monitor and enforce improper disclosure of such information. In many transition disputes, an incumbent’s efforts to protect confidential information will pose a stronger and more defensible objective as oppose to altogether preventing personnel from continuing to support the government customer.
Considerations for Successor Contractors
Successor contractors face a different challenge. They often have little visibility into the agreements imposing post-employment restrictions on the incumbent personnel, yet they must quickly staff the awarded work.
The first step is identifying potential restrictions early in the recruiting process. Candidates can be asked whether they are subject to restrictive covenants and, where appropriate, to provide copies for review. Requesting and reviewing an agreement is not the same as encouraging its breach. Rather, it allows the contractor to understand potential risks before making a hiring decision. It may be that the restriction is overly broad, cannot be enforceable as written, or can be severed from the agreement entirely.
Successor contractors should also be mindful of tortious interference risks. While the precise standards vary, such claims frequently depend on allegations that a company knew about a restrictive covenant and intentionally induced a worker to violate it. For that reason, successor contractors should avoid instructing candidates to disregard contractual obligations, solicit customers, solicit former coworkers, or bring proprietary information from their former company.
Just as importantly, successor contractors should make clear that they are recruiting the individual’s skills, experience, security clearances, relationships with the mission, and institutional knowledge gained through legitimate work experience. They should not seek pricing strategies, proprietary proposal materials, trade secrets, or other confidential, competitive information belonging to the incumbent contractor.
The existence of a restrictive covenant should not automatically disqualify a candidate. The more relevant questions are whether a restriction actually exists, whether its language is enforceable under applicable law, and whether the contemplated role would violate it. Those questions can often be evaluated long before a dispute arises.
Even where a restrictive covenant appears enforceable, successor contractors should consider whether the contemplated role can be structured to comply with the restriction. Job duties, reporting relationships, customer assignments, and transition timelines can often be modified in ways that preserve workforce continuity while reducing legal risk. In many cases, the question is not whether the candidate can be hired, but whether the role can be designed to avoid the conduct the agreement is designed to prohibit.
Conclusion
Restrictive covenants frequently become a flashpoint during government contract transitions, particularly where the incumbent workforce is critical to continued contract performance. Yet the existence of a restrictive covenant rarely answers the entire question.
For incumbent contractors, the key risk is overreaching by treating noncompetes, customer nonsolicitation provisions, and confidentiality obligations as though they all accomplish the same objective. For successor contractors, the risk lies in failing to identify and evaluate restrictions before bringing incumbent personnel aboard.
The better approach is to focus on the specific restriction at issue, the prohibited conduct, and whether the restriction is enforceable under the circumstances. By approaching contract transitions with that level of precision, both incumbent and successor contractors can better protect their interests while minimizing disruption to the government’s mission.