Key Issues in the Enforcement of Restrictive Covenants and Employee Departure

A Hospitality Perspective

By Matthew Grosack Associate, DLA Piper | August 10, 2014

Kamal Sleiman, Associate, DLA Piper co-authored this article

Given the current state of the economy and the need for both hotel franchisors and franchisee owners to protect their respective interests and maintain a competitive advantage in the marketplace, one of the most active areas in hospitality industry today is the enforcement of restrictive covenants. A restrictive covenant is a contractual provision entered into between contracting parties that prevents one or both parties from engaging in certain conduct during and after the business relationship.

It is critical for participants in the hospitality industry to take appropriate (and proactive) measures to protect their business interests. While the hospitality industry at-large embarks on its return to market stability following the economic downturn of the last few years, savvy companies will ensure that their legitimate business interests are adequately protected throughout this transition.

One of the most effective means of protecting such interests, is to ensure that your company is utilizing a carefully drafted and properly tailored restrictive covenant. In the hospitality industry, commonly used restrictive covenants include non-compete agreements, non-solicitation agreements and confidentiality agreements. As the industry stands, many hotel management agreements (HMAs) and other agreements contain some form of a non-competition clause or other similar restrictive covenant. Hotel management organizations, franchisors, and real estate investment trusts (REITs) typically attempt to restrict or substantially limit former employees or executives from actively engaging in business with competing brands.

Given that the enforcement of restrictive covenants in the hospitality industry is an often litigated issue, it is important to understand the contours of the applicable law and responsible entities need to understand the practical implications of the current state of non-compete law. Though courts will typically deem such covenants valid and enforceable, relying on either statute or case law, participants in the hospitality industry must be mindful that courts will only enforce those covenants that are "reasonably" drafted and narrowly tailored (in terms of scope and duration) as necessary to protect the company's "legitimate business interest."

Protection of Confidential Business Information and Trade Secrets

Choose a Social Network!

The social network you are looking for is not available.

Close

Hotel Newswire Headlines Feed  

Kathleen Pohlid
John Tess
Marco Albarran
Ashish Gambhir
Kurt A. Broadhag
Jeffrey Catrett
Steve McKee
Dan Brown
Simon Hudson
William A. Brewer III
Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.