Answering 7 Questions About Non-Compete and Non-Disclosure Agreements
Non-compete and non-disclosure agreements are valuable business tools, but it’s important to understand the distinction between the two. Here are seven frequently asked questions that clarify how these agreements work and why they’re important.
Non-disclosure agreements (NDAs) and non-compete agreements, also called a non-competition agreement or covenant not to compete, have distinct purposes. Both documents, however, are restrictive covenants that limit what an employee can say or do, and (often) where they can and cannot work. These documents are designed to protect proprietary information and the company itself if an employee were to leave the company to work for a competitor.
Lately, NDAs and non-competes have been getting a bit of a bad reputation. A recent story in the New York Times argued these documents can “take a person’s greatest professional assets—years of hard work and earned skills—and turn them into a liability” for employees. The piece claims employers have come to assert ownership over their employees’ work experience as well as their work, and that noncompete agreements in particular can keep employees “stuck” at a company, because the employees fear they won’t be able to get another job.
The truth is, non-compete agreements and non-disclosure agreements are valuable tools for business owners—not because they force people to stay with you, but because they offer legal protection over the work that makes your company different and special. Poorly drafted or unreasonable agreements probably will be deemed unenforceable, but a well-crafted NDA or non-compete should not be. These agreements will respect your right to keep proprietary information protected, and respect an employee’s decision to take his or her career in a different direction.
Common NDA and non-compete agreement questions
There are many reasons you might decide to require your employees to sign either an NDA or a non-compete. It is important to understand the differences between these two documents and how they are enforced. Listed below are seven common questions people ask about these agreements.
Q: What is the purpose of a non-compete agreement?
A: A non-compete is an agreement in which one party agrees not to compete against the other party. In an employer-employee context, this refers to an employee being the recipient of the prohibition on competition and an employer being the protected party, who is using the non-compete agreement to protect her specific business within a specified geographic area for a specified length of time. A non-compete typically restricts an employee from working for a competitor for the length of time and within the geographic area mentioned in the contract. The language of a non-compete is usually contained within the employment contract.
Q: What is the purpose of a non-disclosure agreement?
A: A non-disclosure agreement (also referred to as a confidentiality agreement) between an employer and an employee prohibits the employee from disclosing any of the employer’s proprietary information, business processes, intellectual property, or knowledge assets.
Q: Are non-competes and NDAs enforceable in Ohio?
A: NDAs are generally enforceable in Ohio, provided the confidential information to be protected is properly defined and constitutes the employer’s proprietary information. Non-competition agreements are enforceable in Ohio, provided they are “reasonable.” The Ohio Supreme Court has held that non-competition agreements are reasonable (and thus, enforceable) in Ohio, if the employer can show that:
1) the restrictions are no greater than necessary to protect the employer’s legitimate business interests;
2) they do not impose an undue hardship on the employee; and
3) the restrictions would not injure the public.
There are several important factors the Ohio courts consider in deciding whether to enforce non-competes, including, but not limited to, the geographic area covered by the restriction, the duration of the of the non-compete, whether the employee possesses confidential information or trade secrets of the employer and the likelihood the employee can find other employment if the non-competition agreement is enforced.
Q: Is it legal for an employer to require an existing employee to sign a non-compete and/or a NDA to keep their job?
A: Employers generally may make signing a non-compete or a NDA a condition of employment or of continued employment. There might be exceptions for employees who are already covered by individual employment contracts or union agreements.
Q: What is a reasonable length of time and a reasonable geographic scope for a non-compete agreement?
A: Courts often consider factors such as geographic scope, length of time and the nature of the duties restricted in relationship to one another. A broad geographic scope might be enforced if the duration of the non-compete is as short as a month, but a broad geographic scope coupled with a long period of time is not likely to be enforced. A court generally will not enforce a non-compete that prevents an employee from working in a region where the employer is not doing business.
Q: Is a non-compete or NDA valid after I fire an employee?
A: It depends on the document. If the document addresses what happens after an employee is fired, then it might be valid.
Q: What are non-solicitation agreements?
A: Another instrument that can be useful to employers who are looking to protect their business’ intellectual property is a non-solicitation agreement. Non-solicitation agreements restrict an employee from soliciting the employees or customers of a business. For example, a super-star sales manager who leaves your company would not be able to solicit other team members to leave with them, nor would they be able to poach your customers or clients if the departing employee signed a non-solicitation agreement.
Why these documents are important
A story in The Balance highlights the biggest challenge with non-competition, non-disclosure and non-solicitation agreements: enforcement. Once the trade secret has been divulged, the employee has been solicited to leave, or a former employee’s competition has ruined a business, it takes a lengthy, costly legal process to recover damages and put that proverbial genie back into the bottle.
The Columbus CEO discusses the vital importance of enforcement, quoting a study that revealed less than half of the organizations in the study said their organizations take action when workers take sensitive information. When an employee leaves your organization and starts a new job that potentially violates the agreements they have signed, you may choose to send a “cease-and-desist” demand to the former employee’s new employer informing them of your former employee’s non-competition agreement.
The intention of this blog post is to give you a rough outline of NDAs and non-competition agreements. Whether it is appropriate or necessary for you to use one or both agreements, and what details they should include, should be a topic of conversation with your business attorney.
For more information on this topic, contact Alex Gertsburg at 440-571-7775 or firstname.lastname@example.org. Get more legal tips for your business on The Gertsburg Law Firm blog, with new articles every week.