Among the business owners and the employees in the United States there is often confusion between confidentiality agreements and non-compete agreements and the difference between confidentiality agreement and non-compete agreement. Even though these two legal instruments are both essential for a business, they have different scopes and mechanism. The article discusses about the difference between confidentiality agreement and non-compete agreement and about the similarities between these two agreements. Before analyzing the differences and the similarities, we will first define both legal terms.
In the United States, a confidentiality agreement, also called a non-disclosure agreement, is a document through which a company asks their employee not to share confidential information that the person acquired during their contractual relationship. Here we are particularly focusing on employment contracts, but confidentiality agreements can be used in a variety of circumstances. For instance, a confidentiality agreement can also be entered into with the occasion of a joint business venture.
A non-compete agreement is a document by which a company asks their employee not to compete with the business in one of several ways. Usually, non-compete agreements restrict the activity of the employee only after they leave the company and the contractual relationship is terminated. The scope of non-compete agreements is to prohibit the employee to open a competing business or even work for a competing company in a certain geographic zone for a certain period of time.
Even if these agreements both seek to protect employers, there is a difference between confidentiality agreement and non-compete agreement. One of the biggest differences between the two contracts is the limitation of their scope. Non-compete agreements are usually required to be narrowly tailored. This means that the company cannot prohibit the employee to compete for an undefined period of time. They must be reasonable in choosing the time limit, as well as the geographical limitation of the prohibition to compete. Also, the activities that are considered “competition” should also be well enumerated and well defined. In contrast, confidentiality agreements are very broad in their scope and nature. Usually, such an agreement seeks to protect as much information as possible. Information that is already public cannot be protected under a confidentiality agreement. But other than this, employers are free to define “confidential information” as broad as they wish. Because of this difference, courts in the United States analyze them from a different perspective when it comes to recognition and enforcement. Non-compete agreements are often scrutinized by courts across the United States, while confidentiality agreements are often enforced.
Another important difference to be mentioned is the aspect of mutuality. While confidentiality agreements can be mutual agreements, non-compete agreements are generally one-way agreements. Confidentiality agreements can either protect both parties and so both parties are agreeing not to disclose or use each other’s confidential information. In contrast, non-compete agreements are almost always one-sided agreements. Usually, one party (the employer) requires the other party not to compete. It would also be almost impossible in reality for two parties to be bound not to compete with each other.
As competition in the actual market is growing every day, both non-compete and confidentiality agreements can be effective tools in a strategy to protect one’s business. To better understand the difference between confidentiality agreement and non-compete agreement, contact us your business attorney in Florida.
Malescu Law P.A. – Business Lawyers