Non-compete and non-disclosure agreements are common contractual clauses in employment agreements that aim to protect a company’s confidential information, trade secrets, and business relationships.
As business operations rely heavily on proprietary data and client relationships, enforcing confidentiality through legal agreements has become a standard practice.
This article will explain what non-disclosure and non-compete agreements are, the key components of these agreements, and how they differ. We’ll also briefly cover related restrictive covenants and the role of legal tech in simplifying agreement management for employers.
Understanding Non-Disclosure Agreements
A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a legal contract between an employer and an employee that outlines confidential information the employee agrees not to share outside the company.
NDAs help prevent proprietary company information like trade secrets, financial data, business strategies, and client lists from being revealed to competitors. They protect sensitive information that gives a company its competitive edge.
Key clauses in a non-disclosure agreement include:
- Definition of confidential information – Clearly identifies the types of information considered confidential by the company. This often includes trade secrets, financial data, customer lists, business plans, prototypes, and intellectual property.
- Non-disclosure obligations – Requires the employee to not disclose protected company information for the duration of employment and a defined period after. May specify limited exceptions for legal requirements.
- Return of material – Requires all confidential information to be returned to the company when employment ends.
- Remedies for breach of contract – Spells out legal consequences like injunctive relief or monetary damages if the agreement is violated.
NDAs allow companies to share sensitive information with employees needed to do their jobs while protecting trade secrets from competitors.
Exploring Non-Compete Agreements
A non-compete agreement prohibits an employee from working for a direct competitor for a defined period of time after leaving the company. Also known as a covenant not to compete or restrictive covenant, these agreements aim to protect customer relationships and competitive advantage.
Non-competes prevent employees with access to valuable company knowledge, like proprietary processes or client relationships, from sharing that advantage with a new employer soon after leaving. This gives the company time to change processes or business relationships to prevent direct competition using their own strategies.
Elements of a non-compete agreement include:
- Restricted role and industry – Defines what roles and companies would be considered direct competition. This establishes the scope of prohibited employment.
- Geographic limits – Restricts competitive employment only within locations where the company operates and has business interests to protect.
- Time period – Specifies a reasonable timeframe the restriction applies, often 6-12 months.
- Early termination – Allows the non-compete obligation to end if employment is terminated without cause.
- Remedies for breach – Details injunctive relief and damages the employer may pursue for violation.
While related, non-disclosure and non-compete agreements differ in key ways:
| Non-Disclosure Agreement | Non-Compete Agreement |
| Protects confidential information | Restricts competitive employment |
| Applies during and after employment | Applies for a defined period after employment |
| No geographic limits | Limited to certain geographic areas |
| Permanent unless superseded | Temporarily restricts competition |
NDAs aim to prevent information sharing, while non-competes focus on restricting employment. Companies often utilize both types of agreements for high-level employees. An experienced business contracts lawyer can help you determine what types of agreements you should be using to protect yourself.
State Laws and Enforceability
The enforceability of non-compete and non-disclosure agreements is shaped by state laws. Non-competes are generally enforceable if they meet certain reasonableness requirements.
To be valid, non-competes must be:
- Ancillary to an otherwise enforceable agreement
- Supported by consideration
- Reasonably limited in time, geographic scope, and industry restrictions
Also recognizes the enforceability of properly constructed non-disclosure agreements. Employers should ensure their agreements comply with statutes and case law precedents to be enforceable.
Beyond Non-Compete and Non-Disclosure Agreements
While non-compete and non-disclosure agreements are common restrictive covenants, some other agreements employers utilize include:
- Non-solicitation agreements – Restricts soliciting customers or employees of the company after leaving for a defined period.
- Non-interference agreements – Prohibits interfering with vendor, supplier, or contractor relationships of the company post-employment.
- Non-poaching agreements – Prevents soliciting and hiring employees to join a new company.
These agreements protect customer relationships, talent, and other business interests. Companies sometimes use non-solicitation, non-interference, or non-poaching agreements together with non-compete clauses.
How Legal Tech Simplifies Contract Management
Reviewing, tracking, and managing a large volume of employment agreements can be unwieldy without the right tools. This is where legal tech solutions help streamline the process for HR and legal teams through:
- AI-powered review of agreement terms to flag issues
- Centralized repository of all employment contracts
- Easy version control and updating of agreement templates
- Automated tracking of contract obligations and expiration
Using legal tech to manage agreements provides greater oversight and reduces the manual workload for employers.
Non-compete and non-disclosure agreements play an important role in protecting company interests and relationships. Understanding the key elements of these agreements, as well as related restrictive covenants, allows both employers and employees to navigate contractual obligations and legal rights. With the help of legal tech, companies can implement air-tight contracts while efficiently managing a high volume of agreements.
Contact an Experienced Legal Team
While restrictive in nature, thoughtful non-compete and confidentiality clauses serve an important purpose for companies in protecting competitive advantages, proprietary information, and customer relationships.
Consulting a business lawyer can help secure your business interests while avoiding pitfalls in drafting strong agreements.
