Non-Disclosure and Non-Compete Agreements; How to Use Them Effectively


It is essential that business owners have employees sign non-disclosure and non-compete agreements, in order to protect their intellectual and proprietary information from competitors and others.  The best time to have employees enter into these agreements is when the employee is first hired.

A typical non-disclosure agreement is one where the employee agrees not to release confidential information that has come into his or her hands during employment.  Clearly, a business owner has a keen interest in protecting this information from customers, suppliers, and competitors.  Non-disclosure agreements are also typically used when a business is looking to be sold and is entertaining potential purchasers and even investors.  The purpose in that context is to allow a potential purchaser or investor to have access to some company information but prevent them from releasing that information to others or using it.

Unfortunately, no matter how well-drafted the nondisclosure agreement is, the best protection for a company looking to protect valuable information is to limit its access.  Non-disclosure agreements do tend to have the effect of deterring employees and others from stealing and using valuable information, but if someone is really intent on stealing, no agreement is going to prevent that completely.  Of course, these agreements do include provision for serious consequences if they are violated, and allow the company to get an injunction to prevent harm, but litigation then becomes a necessity.

Non-compete agreements restrict an employee from working for competitors both during and after their employment with a particular business. In order to be enforceable, these provisions must be reasonable.   They must be reasonable as to distance and time. For example, an agreement preventing an employee from working for a competitor for 10 years after he/she has left one’s employ is probably unreasonable, whereas a one or two-year period is fair.  Having a former employee restricted from working for any competitor in the entire state where the business is located is very likely unreasonable, whereas a 10-mile limit is probably fine.  Again, non-compete agreements work well to prevent employees from working for a nearby competitor after they have left your employ, but they are not fail-proof.  Of course, these agreements should be routinely given to employees, particularly when they are about to leave one’s employ, assuming the employee did not sign one at the outset when hired.  Offering severance payments to an employee in exchange for the employee signing such an agreement can be quite effective.

Clearly, having employees sign non-disclosure and non-compete agreements upon their hire will lend greater protection to the employer and having them sign at the outset will ensure they are done.