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Should you have noncompete agreements/ NDAs with your employees?

Posted by Shivali Anand

October 15, 2021    |     4-minute read (610 words)

While it goes without saying that your workers develop valuable expertise while working for you, they may take that knowledge with them when they depart, potentially resulting in rivalry. Employers regularly require workers to sign nondisclosure and noncompete agreements to deter such behavior.

Is a nondisclosure agreement necessary?

A nondisclosure agreement, sometimes known as a confidentiality agreement, is a legally enforceable contract that forbids an employee from exposing any of the employer's private information, intellectual property, business processes or knowledge assets.

An NDA usually contains the following information:
  • A precise definition of what constitutes confidential information.
  • The confidentiality term, which specifies how long the material must be kept secret.
  • Nondisclosure of sensitive information requirements.
  • The recipient's (or new employee's) responsibilities, such as how to use the private information, when it's appropriate to share it and under what conditions.
  • Other requirements, such as state laws and jurisdictions, are also included.
So, when is the best time to accomplish this? The answer is simple: An NDA is useful when you want to discuss anything secret about your firm with someone else and want to be sure they don't use it without your permission.

As a result, in addition to current and future workers, you should consider an NDA:

  • When submitting an offer to a possible partner or investor 
  • When obtaining services from a firm that has access to sensitive information 
  • When exchanging business information with a prospective buyer
Disclaimer: While an NDA might provide some security, it cannot ensure that your intellectual property is protected. If someone who signed an NDA discloses your trade secrets, seek legal advice.

Is a noncompete agreement necessary?

A noncompete agreement is an agreement between an employer and an employee, which specifies that the employee agrees not to compete with the employer after their work period has ended or while they are still employed. What forms of competition are forbidden should be specified in the agreement. 

The noncompete agreement often prohibits an employee from working for a rival or launching a firm that competes directly with the employer. The majority of noncompete agreements are controlled by state law. These agreements are essentially a legislative exemption to the usual rule that an employer cannot limit an employee's right to leave and work elsewhere. Because noncompete agreements are the exception rather than the rule, most states have legislative provisions for them.

These rules typically strike a compromise between the employer's right to safeguard its investment in an employee (legitimate business interest) and the employee's freedom to seek employment elsewhere. Keep in mind that many jurisdictions have stringent rules regarding when you may ask employees to sign and agree on noncompete agreements and what should be in them.

Nondisclosure versus noncompete agreement

A noncompete agreement differs from a nondisclosure agreement in that it prohibits employees from competing with one another. In most cases, the latter does not preclude your employee from working for a rival. Instead, it restricts the employee from disclosing anything that you consider secret or proprietary, such as underlying technology, customer lists, or product development knowledge.

Noncompete and nondisclosure agreements are beneficial instruments for business owners big and small since they provide legal protection for the work that distinguishes and differentiates their firm. Agreements that are unreasonable or excessively broad are likely to be ruled unenforceable. A well-defined NDA or noncompete agreement, on the other hand, should not be. These agreements respect the employee's right to keep confidential information private and the employee's option to choose a new professional path.

If you're considering using either of these agreements as part of your onboarding or partnering process, speak with an attorney or a human resources professional for advice.

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