Last Updated on December 8, 2022 by Anda Malescu
The article explores the difference between non-compete and non-disclosure agreements in the United States.
Non-compete agreements and non-disclosure agreements are both legal instruments that are regarded as restrictive covenants that limit what an employee can do or say under certain circumstances. Even though they are both meant to protect the employer, the two restrictive covenants have different scopes.
One is designed to prevent an employee from leaving the company and going to the competitor or conducting business in direct competition with the former company and the other is designed to prevent an employee or individual associated with a company from revealing certain information about that company to the competitors. However, this is only a brief description of the two restrictive covenants and the difference will be discussed further in more detail. In order to better demonstrate the difference between non-compete and non-disclosure agreement, we must first properly define each restrictive covenant.
Non-compete agreements are instruments utilized to prevent employees from leaving a company and going to the rivals or even forming their own rival company in direct competition with the former company they have been working for. A non-compete agreement could, for example, prevent an employee from setting a business within 30 miles from the location of the former company for a duration of one year. However, these details are taken into consideration by courts when employers seek the recognition and enforcement of non-compete agreements.
Even if non-compete agreements can be very useful and effective, they are not always enforceable. The approach is not uniform among the states in the United States. Many states have concluded that non-compete agreements restrict free trade and, as a result, the courts refuse to recognize and enforce them. Such agreements can be either stand-alone agreements or can be inserted as a clause in the employment agreement.
Non-disclosure agreements, also known as confidentiality agreements, are contracts utilized to prevent employees or independent contractors from disclosing any sensitive information they obtain on the duration of the employment contract. Their scope is to help companies to protect the confidential information within the firm. In some cases, the information is vital to their economic position and often represents an advantage against their competitors.
Even if neither of the two agreements set above cannot prevent other companies from hiring the former employees, both instruments are very effective at prohibiting the employees of a company from using information from their prior companies. This can be a vital advantage for the former companies because they can legally prevent an individual from disclosing vital information the employee has gained during their contract.
In other words, such agreements can be an indirect instrument against companies that seek to hire specific people only for their knowledge acquired at competitors. Companies can hire people for their specific talent and skills but cannot hire them for specific information only known due to the contractual relationship with the former employer.
Even if a non-compete agreement and a non-disclosure agreement are similar (they both serve to protect the interest of the employer) there is a difference worth mentioning. While the non-compete agreement usually comes into force only after the contractual relationship has ended and must have a reasonable duration (usually one year), the non-disclosure agreement comes into force at the signature of the employment contract and is not usually limited for a specific amount of time. Normally, former employees are held by the confidentiality agreement also after the contract ended for the period in which the information acquired is considered confidential.
The purpose of the article is to give an overview of the difference between non-compete and non-disclosure agreements. However, such agreements are very complex legal instruments that must be considered together with the specific circumstances of each case. Contact us, your business attorney in Florida, to help you better understand the difference between non-compete and non-disclosure agreements and assist you with your legal needs or schedule a consultation.
Malescu Law P.A. – Business Lawyers
