Knowing your rights as a business owner and also as an employee is essential when it comes to non-compete and non-disclosure agreements. Learning the difference is also key when accepting job offers and knowing expectations as you move forward in your career. Here’s what you should know.
What’s a Non-Compete Agreement?
A non-compete agreement or clause prohibits employees from competing with your business or organization after employment has ended. This type of document can provide various kinds of protection for your business, which include:
- Time and Geographical Restrictions: A non-compete agreement typically restricts employees from working for an organization’s competitor for a specific period of time or in a specific geographic location after leaving the business.
- Trade Secret Use: A non-compete agreement can prevent former employees from sharing ideas, processes, software, formulas, client lists, or intellectual property (i.e., work or an invention obtained on the job with another employer or using this information to start their own business.
- Stealing Customers: A non-compete agreement can keep employees from stealing customers from a business if they open their own business after leaving their former company.
When Would a Business Use a Non-Compete Agreement?
Non-compete agreements are standard practice for many businesses and can be used in several situations. For example, when a business is sold, the buyer may require the seller to sign a non-compete agreement to agree not to establish a competing company. Or, for an industry that may require employees to build a client list during their employment (think sales or service professionals) a non-compete may be used to protect the information gained during that person’s employment.
Suppose an employee could use information learned from your business to replicate your product, service, or process that would be detrimental to your business. In that case, it’s a good idea to seek professional legal guidance to help you outline a non-compete agreement to protect your company.
What’s a Non-Disclosure Agreement?
Non-disclosure agreements, or NDAs, are legally enforceable contracts that create a “confidential relationship” between a person who may have sensitive information and a person who will gain access to that information. The Legal Information Institute defines a confidential relationship as an actual fiduciary relationship, such as between a lawyer and client, or, more informally, a relationship of trust and reliance, such as between a parent and child. Other names for non-disclosure agreements include confidentiality agreements, confidentiality disclosure agreements, and non-disclosure contracts.
An NDA specifically focuses on an individual’s or organization’s information privacy, which is different from other documents or contracts that focus primarily on the terms and conditions of service transactions. For example, an employer may ask new employees to sign one at the start of a new position to protect company data, or you might come across this document at the beginning of a business relationship or a complex financial transaction.
When Would a Business Use a Non-Disclosure Agreement?
Confidentiality and protection are the main goals of a non-disclosure agreement. These documents create the legal framework to protect ideas and information from being stolen or shared with competitors and third parties. NDAs even offer protection in the event of accidental breaches to make sure your business is covered.
Breaking an NDA agreement could have serious consequences, including lawsuits, financial penalties, and even criminal charges. The three essential functions of an NDA include:
- Identifying protected information: By setting expectations on what is confidential and what can be shared, NDAs help to codify information within an organization. This practice allows all parties to work freely within the boundaries created by the confidentiality agreement.
- Protecting sensitive information: Signing an NDA creates a legal obligation between both parties to keep sensitive information confidential. Any leak of that information is an automatic breach of contract.
- Protecting rights to patents: Because public disclosure of a pending invention can sometimes void patent rights, an NDA can protect an inventor as they develop a new product or idea.
If your business is looking to preserve and protect essential information, one or both of these documents is worth looking into with the help of a trusted legal professional. Debranski & Associates’ experienced team can offer consulting, counsel and representation for businesses in and around north metro Atlanta. Reach out to our office to schedule a consultation and to learn more about how we can help.