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Noncompete or nondisclosure agreement – which does my company need?

If your business is in an industry where you depend heavily upon sensitive information – such as confidential client lists, secret formulas or patented processes – then you put a lot of trust in your employees. You may fear that, at any moment, a competitor could lure one of your employees away – or that the employee could strike out on their own – and that your sensitive information will be used against you. Which kind of contract can you use to prevent this from happening?

Noncompete vs nondisclosure agreements

A noncompete agreement is a contract whereby a present or former employee agrees not to directly compete with their employer. This could mean that they won’t start their own business in the same industry within a certain radius of their employer for a certain amount of time, or that they won’t join a competitor and steal clients from their former employer.

A nondisclosure agreement, on the other hand, specifically outlines information that the employee agrees not to reveal to anyone. If the employee ever discloses the forbidden information to a third party while the agreement is in effect, the employer would then have a cause of action to sue for breach of contract.

The important thing to remember about both of these documents is that a court can invalidate them if they are unreasonable. Thus, it’s important to limit the scope of the agreements. For example, if a noncompete agreement tries to prevent an employee from working in their industry for too long, or in a geographic area that is too large, a court could strike it down as overburdensome.

When to have employees sign them

There’s nothing stopping you from having your employees sign both of these documents. In fact, many companies do exactly that upon hiring a new employee.

You can make it a regular practice of your business to have new employees sign both a noncompete and a nondisclosure agreement as a condition of hiring them. That way you will have protection both during and after their employment. If you already have employees, it’s not too late to require them to sign these contracts now.

Competition and exposure of sensitive information is a threat to businesses of any size. With the right contracts in place, you can help to reduce the possibility of an employee doing serious damage to your company through competition or disclosure of information.