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Which laws govern noncompete and nondisclosure agreements?

Posted by Shivali Anand

September 2, 2021    |     5-minute read (858 words)

Are you under the idea that your company doesn't have any trade secrets? That notion may be wrong for most businesses, no matter how small they are.

Trade secrets are a kind of intellectual property that is considered a company asset. Manufacturing methods, assets, client lists and sales plans are all examples of trade secrets, and you may have to reveal these trade secrets to your employees, suppliers, vendors or other entities in the course of running a company.

Having someone sign a nondisclosure agreement and/or a noncompete agreement is one of the simplest ways to protect your trade secrets. It's critical, though, to know which regulations govern how you can establish, handle and enforce these agreements.

NDAs and the law

An NDA is a contract in which at least one party agrees to keep confidential information private and to refrain from releasing it to others. The person who discloses sensitive information is known as the disclosing party, while the one who receives it is known as the receiving party.

The definition of private information, the receiving party's obligations, the duration of the NDA's validity and any exclusion should all be included in an NDA.

When organizations operate globally, and all parties to an NDA are not located in the same country, the NDA should specify whose law governs the agreement. It should also determine which courts have jurisdiction over the NDA in the event of a disagreement.

Noncompete agreements and the law

A noncompete agreement between an employee and an employer prohibits the employee from competing with the employer after the employment connection ends or during the employment period. The types of competition that are not permitted must be specified in the agreement.

The legal status of noncompete agreements in the U.S. falls under state jurisdiction. Noncompete agreements are enforced and recognized differently in different states. Noncompete agreements, for example, are now unenforceable in North Dakota and Oklahoma. They are likewise not recognized in California. In 2015, Hawaii made noncompete agreements for high-tech companies illegal.

The majority of state courts have framed noncompete legislation in terms of reasonableness, based on the following elements:
  • The constraints do not go beyond what is required to protect the employer's interests;
  • The restrictions do not impose an undue hardship on the employee; and 
  • The agreement does not contradict public policy.

The Biden administration is pushing to limit certain

noncompete agreements

In July this year, President Joe Biden signed an executive agreement asking the Federal Communications Commission to create a rule that curtails the use of unfair noncompete agreements. An estimated 20% of American workers fall under such agreements. While employers await instruction from the federal government, they should be mindful that the enforceability of noncompete agreements is assessed under state laws.

Many state legislatures have updated their noncompete legislation. Among these are:

  • Washington

    . Noncompete agreements are prohibited under a state law that took effect Jan. 1, 2020, for employees earning less than $100,000 per year and independent contractors earning less than $250,000 per year.
  • Oregon

    . HB 2992 requires employers to provide a signed, written copy of the noncompete agreement to a dismissed employee within 30 days of their end date. Failure to do so will render the agreement null and void.
  • New Hampshire

    SB197 made it illegal for an employer to require an employee earning 200% of the federal minimum wage to sign a noncompete agreement that restricts the employee from operating for another employer for a specified period of time or within a specific geographic area.
  • Maine

    . LD 733, an act to encourage workers to stay in Maine, limits noncompete agreements for low-wage employees earning 400% or less of the federal poverty line and prohibits restrictive employment agreements. Noncompete agreements are disfavored for employees earning more than 400% of the federal poverty level and are only enforceable if necessary to protect the employer's legitimate business interests.
  • Massachusetts

    . Bill S.1117 prohibits the enforcement of noncompete agreements against employees who are fired without cause.
  • Rhode Island

    . The Rhode Island Noncompetition Agreement Act prohibits noncompetes for the following employees, regardless of geographic location or duration: nonexempt employees under the Fair Labor Standards Act, undergraduate or graduate students participating in an internship or short-term employment, employees aged 18 or younger, and low-wage workers (those earning 250% or less of the federal poverty level).
  • Maryland

    . The Noncompete and Conflict of Interest Clauses Act recognize that particular noncompete and conflict-of-interest clauses violate Maryland public policy and are thus unenforceable.

Do you need the services of a lawyer?

It is strongly advised that, as with any other legal contract, businesses hire lawyers to draft these contracts rather than using online templates. If a person is found in breach of the contract, an attorney can ensure that the employment agreement is enforceable in the local courts. Part of this task entails researching what has previously worked and how the current agreement will work with the courts in the future.

Contract enforceability often necessitates specific language and provisions in the contract that judges would consider related to employment and business interactions. Working with a qualified attorney is, therefore, your best bet when drafting these documents.

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