A Residuals Exclusion Clause is an employment provision that restricts an employee's right to use or benefit from residual knowledge, skills, or experience gained during their employment after they leave the company. "Residuals" typically refer to general knowledge, techniques, or expertise that remain in an employee's memory or skill set—as opposed to trade secrets or confidential information. For example, a software developer might retain knowledge of programming languages or architectural principles learned on the job, but a residuals clause might attempt to prevent them from using that knowledge at a competitor. This clause is particularly controversial because it attempts to restrict what employees can do with their own mental capabilities and general professional competencies.
The enforceability and ethical implications of residuals exclusion clauses vary significantly by jurisdiction. Many courts view these clauses with skepticism because they effectively extend non-compete restrictions beyond what is reasonable or necessary to protect legitimate business interests. Unlike trade secrets (which are protectable) or confidential information (which can be restricted), general skills and knowledge are considered the employee's own property. Overly broad residuals exclusion clauses may be unenforceable as unreasonable restraints on trade, particularly in employee-friendly jurisdictions like California. The clause's severity depends heavily on how broadly it's drafted and what specific knowledge or skills it purports to restrict.
If you are an employer drafting this clause, narrow it significantly to protect only genuinely proprietary methodologies, client lists, or business processes—not general industry knowledge or standard professional skills. If you are an employee reviewing this clause, push back strongly against any language that restricts your ability to use general professional competencies, and seek clarification that the clause applies only to trade secrets and confidential information as defined by law. Consider negotiating for a definition of "residuals" that explicitly excludes general skills, publicly available knowledge, and information learned from sources other than the employer. Have an employment attorney review the clause under your jurisdiction's specific laws, as many states will not enforce overly restrictive residuals provisions.
Frequently Asked Questions
What does this clause mean in simple terms?
A Residuals Exclusion Clause is an employment provision that restricts an employee's right to use or benefit from residual knowledge, skills, or experience gained during their employment after they leave the company. "Residuals" typically refer to general knowledge, techniques, or expertise that remain in an employee's memory or skill set—as opposed to trade secrets or confidential information.
Why should I care about this clause?
For example, a software developer might retain knowledge of programming languages or architectural principles learned on the job, but a residuals clause might attempt to prevent them from using that knowledge at a competitor. This clause is particularly controversial because it attempts to restrict what employees can do with their own mental capabilities and general professional competencies.
What are my options?
The enforceability and ethical implications of residuals exclusion clauses vary significantly by jurisdiction. Many courts view these clauses with skepticism because they effectively extend non-compete restrictions beyond what is reasonable or necessary to protect legitimate business interests.
How does this affect small businesses?
Unlike trade secrets (which are protectable) or confidential information (which can be restricted), general skills and knowledge are considered the employee's own property. Overly broad residuals exclusion clauses may be unenforceable as unreasonable restraints on trade, particularly in employee-friendly jurisdictions like California.