Nondisclosure Agreements and Noncompete Agreements


Non-disclosure agreements and Non-compete agreements

What is the difference and does it matter?

What is a non-disclosure agreement (NDA)?

An NDA, sometimes called a confidentiality agreement, is an agreement that the employee signs to protect sensitive commercial information that the company deems to be valuable to the company’s business.  It can be very broad, requiring nondisclosure of anything from intellectual property to software code to trade secrets.  Usually, researchers, scientists, programmers, and anyone with access to company data will be asked to sign an NDA as a condition of employment.  The NDA simply prevents employees from disclosing information to others, it does not prevent the employee from working for others so long as they do not disclose sensitive or confidential company information.

What is a non-compete agreement?

A non-compete agreement prohibits an employee from working for a competitor in a related business or area for a specific amount of time.  Usually, these agreements (or sometimes even just clauses or statements in an employee handbook) are used for employees with access to client information, sales employees, or high-level business employees.

Are non-compete agreements enforceable in my state?

California is the only state that outright invalidates non-compete agreements, except for a few specific statutory instances.  For the most part, if you work in California, live in California, or plan to move to work in California, a non-compete agreement is invalid.  The other states all have different versions of how stringently they will enforce a non-compete agreement.  For example, if you plan to sue a former employee who signed a non-compete agreement who is violating the terms of the non-compete in Virginia, the courts will look at the following:

  1. Length of time of the agreement – how long are you barring the employee from working for a competitor in the field?  To be safe, 2-3 years is the longest recommended amount of time you should attempt to restrain the employee from working for a competitor.
  2. Geographic distance – how wide of a geographic area have you claimed on the agreement?  Are you preventing the employee from working for a competitor in the entire U.S., or just within, for example, 50 miles of your company’s office?

You cannot and should not attempt to restrain the employee from working in the field or practicing their line of work entirely, since an agreement that broad will likely be invalidated in court.

Image by Flickr user Casey.Marshall (Creative Commons)

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  1. Protecting Your Trade Secrets When Working With Third Parties » Smlbizlaw™ says:

    [...] already covered the basics of confidentiality or non-disclosure agreements in a previous post. Not only should you use such agreements with all new employees, it’s also crucial that any third [...]

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