Protecting valuable information and client goodwill is essential to the operation and longevity of almost every business. Non-Disclosure and Non-Compete Agreements are key documents which provide your business with protection for those things you have spent so much time cultivating. This article gives a general overview, the key elements, and other considerations for both NDAs and Non-Competes.
What are NDAs and Non-Competes?
Non-Disclosure Agreement (NDA)
An NDA, or Confidentiality Agreement, is a contract between the employer and employee which establishes a confidential relationship. NDAs establish guidelines for the sharing of information between the parties, but also imposes certain restrictions if one of the parties departs from the business. Usually, the recipient of confidential information agrees not to disclose, share, copy, use, or steal any of the information.
A Non-Compete Agreement is a contract between an employer and employee in which the employee agrees to refrain from one of or both of the following: (i) start a competing business in the same industry/line of business as the employer, or (ii) work for a competitor of the employer upon leaving the business. The employer enters into this agreement for a specified period and location.
Why are they important to your business?
It’s likely that over the course of your business, you have invented new goods, created intellectual property, disclosed financial plans, and discussed innovative ideas. NDAs help your business protect those pieces of information from being disclosed to competitors or the public. Although some employees or business partners may see an NDA as a sign of distrust, it is more likely that it will legitimize your business by conveying how serious you are about protection.
Non-Compete agreements protect one of the most valuable assets in business: goodwill with customers. Over the course of your business, clients and customers have learned to trust your product, rely on your service, and hold the name of your business in high regard. Non-Compete agreements prevent employees from suddenly taking those customers away from your business for themselves or to a competing business.
What are the essential elements of both?
The essential elements to an NDA are that: (i) the business is seeking to prevent the disclosure of confidential information, and (ii) the NDA is protecting a legitimate business interest. Both parties should be listed on the NDA agreement, along with the information sought to be kept confidential and a reason why. Note that an employee will not be held in violation of an NDA if he or she discloses confidential information relating to sexual assault.
Non-Compete agreements must be (i) supported by valid consideration, and (ii) reasonable as to scope and limited actions. To be supported by valid consideration, a Non-Compete agreement must provide something of value to an employee in return for their promise not to compete. To be reasonable in scope, Non-Competes must not restrict an employee for more than a reasonable time and within a reasonable geographic location.
In Virginia, there is no bright line rule for scope, but courts typically enforce covenants of up to two years with narrowly tailored geographic limits. In North Carolina, courts will consider the following factors: (1) the area of the restriction, (2) the area assigned to the employee, (3) the area in which the employee actually worked, (4) where the employer operated, (5) the nature of the business, and (6) the nature of the employee’s duty and knowledge.
What we provide:
Does your business need a Non-Disclosure or Non-Compete Agreement? Please reach out to us! Our team provides turn-key solutions to your business through an efficient streamlined process. We have assisted hundreds of businesses with strategy and drafting of NDAs and Non-Competes. Give us a call today!