Non-Disclosure and Non-Compete

Non-disclosure contracts and non-compete contracts are important business contracts designed to protect the parties to the contract in different ways. Knowing the differences is important to using each of these legal documents properly, and to their greatest effect.

Non-Disclosure Contracts

Non-disclosure contracts are used to keep information protected from public knowledge. These documents are sometimes also referred to as a confidentiality contract, or a non-disclosure agreement, or NDA. A non-disclosure contract creates a confidential relationship between the parties to the contract and bars the parties from revealing to anyone else the confidential information that is protected by the non-disclosure contract.

Inventors often use non-disclosure contracts to protect their inventions prior to filing a patent application, and after the patent application is filed but not yet published. Trade secrets are also often protected by non-disclosure contracts, as are customer lists, secret business practices, formulas and other vital business information that attributes its value to the fact that the information is not widely known.

Non-Compete Contracts

Non-compete contracts, or non-compete agreements, are contracts used by employers upon hiring a new employee to prevent that employee from competing with the employer in the event that the employee is terminated or quits. A non-compete contract cannot impinge on the employee’s ability to earn a living, and so non-compete contracts must be reasonable and narrowly tailored in terms of scope, geographical region, and duration.

The period that the former employee is prevented from competing with the former employer must be limited to only a few years (what is reasonable in terms of duration depends on the circumstances surrounding the employment situation), and these types of agreements are typically limited to a set geographical area, often covering an area that is within a certain radius of the former employer.

Non-compete contracts must also be supported by valuable consideration (i.e., money, or employment in exchange for the employee refraining from competing with the employer once the employer-employee relationship has ended) and must protect a legitimate business interest of the employer in order to be enforceable. A legitimate business interest could be keeping company information confidential, or preventing a former employee from capitalizing on the goodwill of the employer.

If you have any questions about or need assistance preparing a non-disclosure contract or a non-compete contract, please contact Parsons & Goltry online, or by calling 480-991-3435.

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