Are you thinking about signing a non-competition, non-solicitation or nondisclosure agreement? If you are, it’s important to understand what you’re agreeing to.These agreements can have a significant impact on your ability to work in your chosen field. Thus, it’s crucial to know what you’re signing up for. In this blog post, we’ll cover their basics and some things to keep in mind if you’re considering signing one.
Non-Competition Agreements
Non-competition agreements are contracts between employers and employees. These contracts say that an employee may not compete with a company while working there. They also extend past the date employment ends. Sometimes, they are also known as non-compete clauses, non-competition clauses or restrictive covenants.
Employers design these contracts to protect their business interests. These contracts prohibit an employee from leaving the company, then competing with the company. They also prohibit going to work for a competitor. They help an employer protect its confidential information and trade secrets.
Non-competition agreements can beneft employers, but they can also be problematic for employees. They can restrict an employee’s ability to find new employment. For that reason, they prevent competition only for limited periods of time. Likewise, they often prohibit competition within a specific geographical area.
An Example
Here’s an example of a non-competition agreement. It’s hard reading because a lawyer wrote it. But detail is important, and it looks detailed.
1. For the Time Period following the Separation Date of a Separating Member, the Separating Member will not directly or indirectly engage in any business that competes with the Company. A business that competes with the Company includes, but is not limited to: (i) engaging in a business as owner, partner, or agent, (ii) becoming an employee of any third party that is engaged in such business, (iii) becoming interested directly or indirectly in any such business, or (iv) soliciting any customer of the Company for the benefit of a third party that is engaged in such business.
2. This Non-Competition Agreement is not geographically restricted because the Company is an E-Commerce company that sells over the Internet to wherever a customer is located or directs.
3. The Members acknowledge that this Non-Competition Agreement will not adversely affect their livelihood should they cease to be a Member of the Company.
Non-Solicitation Agreements
Non-solicitation agreements prevent individuals from soliciting business from a company’s customers or employees. Companies use them to protect a company’s trade secrets and confidential information. Non-solicitation agreements are binding contracts that courts can enforce. But they must limit themselves by time and place.
An Example
1. For the Time Period following the Separation Date of a Separating Member, the Separating Member will not directly or indirectly solicit business from, or attempt to sell, license or provide the same or similar products or services as are now provided to, any customer or client of the Company.
2. For the Time Period following the Separation Date of a Separating Member, the Separating Member will not use the Company’s existing client demographic and confidential information to solicit and provide quotes and/or transfer business to any competing entity.
3. For the Time Period following the Separation Date of a Separating Member, the Separating Member will not directly or indirectly solicit, induce or attempt to induce any employee of the Company to terminate his or her employment with the Company.
Non-Disclosure Agreements
Non-Disclosure Agreements (“NDAs”) require a party to keep confidential company information secret. Companies often use NDAs in business settings. Suppose a company is thinking about hiring an employee or indpendent contractor. The company might ask for an NDA.
There are two types of NDAs: mutual and one-way. In a mutual NDA, neither party may disclose confidential information aout the other party. In a one-way NDA, only ond of the parties agrees not to disclose confidentiakl information.
An Example
1. The term “Confidential Information” means any information or material which is proprietary to the Company, whether or not owned or developed by the Company, which is not generally known other than by the Company, and which a Member of the Company may obtain through any direct or indirect contact with the Company. Regardless of whether specifically identified as confidential or proprietary, Confidential Information shall include any information provided by the Company concerning the business, technology and information of the Company and any third party with which the Company deals, including, without limitation, business records and plans, trade secrets, technical data, product ideas, contracts, financial information, pricing structure, discounts, computer programs and listings, source code and/or object code, copyrights and intellectual property, inventions, sales leads, strategic alliances, partners, and customer and client lists. The nature of the information and the manner of disclosure are such that a reasonable person would understand it to be confidential.
2. “Confidential Information” does not include (i) matters of public knowledge that result from disclosure by the Company; (ii) information rightfully received by a Member of the Company from a third party without a duty of confidentiality; (iii) information independently developed by a Member of the Company; (iv) information disclosed by operation of law; (v) information disclosed by a Member of the Company with the prior written consent of the Company; and (vi) any other information that both parties agree in writing is not confidential.
3. The Members of the Company understand and acknowledge that the Confidential Information has been developed or obtained by the Company by the investment of significant time, effort and expense, and that the Confidential Information is a valuable, special and unique asset of the Company which provides the Company with a significant competitive advantage, and needs to be protected from improper disclosure. In consideration for the receipt by the Members of the Confidential Information, the Members of the Company agree:
(i) Members of the Company will hold the Confidential Information in confidence and will not disclose the Confidential Information to any person or entity without the prior written consent of the Company.
(ii) Members of the Company will not copy or modify any Confidential Information without the prior written consent of the Company.
(iii) Members of the Company shall promptly advise the Company if they become aware of any possible unauthorized disclosure or use of the Confidential Information.
4. If it appears that a Member of the Company has disclosed (or has threatened to disclose) Confidential Information in violation of this Agreement, the Company shall be entitled to an injunction to restrain that Member from disclosing the Confidential Information in whole or in part. The Company shall not be prohibited by this provision from pursuing other remedies, including a claim for losses and damages.
5. For the Time Period following the Separation Date of a Separating Member, the Separating Member will not attempt to do business with, or otherwise solicit any business contacts found or otherwise referred by Company to the Separating Member for the purpose of circumventing, the result of which shall be to prevent the Company from realizing or recognizing a profit, fees, or otherwise, without the specific written approval of the Company. If such circumvention shall occur the Company shall be entitled to any commissions due pursuant to this Agreement or relating to such transaction.
6. Upon the written request of the Company, a Separating Member of the Company shall return to the Company all written materials containing the Confidential Information. The Separating Member shall also deliver to the Company written statements signed by the Separating Member certifying that all materials have been returned within fifteen (15) days of receipt of the request.
The Takeaway
You should carefully read any document your employer or contractor asks you to sign. This is especially true of non-competition, non-solicitation and non-disclosure agreements. It might be wise to buy an hour of time from a business attorney to review before signing.