This article explores the difference between non-disclosure agreement and non-compete agreement across the United States.
For the most part, both the non-disclosure and the non-compete agreement seek to protect the same business interests – a company’s private information such as trade secrets, intellectual property, financial information, marketing plans, client acquisition strategy, clientele lists and other information. Such information is essential to protect business vitality, competitive advantage, industry leadership, and ultimately the market share.
However, non-disclosure agreements (also known as NDA) and non-compete agreements serve two distinct purposes, and each protects a different and specific business interest.
In the United States, these contracts are governed by the law of each state and there are differences between state laws, but here we discuss the difference between non-disclosure and non-compete agreement overall without addressing a specific state law.
Difference between non-disclose agreement and non-compete agreement
Some differences between non-disclosure agreement and non-compete agreement include:
• Protection of separate and distinct business interest.
Companies, individuals, business partners, investors and entrepreneurs use a non-disclosure agreement in order to protect vital and confidential information from being disclosed to other third parties.
In the course of doing business and contract negotiations, businesses and individuals share private information that gives them competitive advantage with independent contractors, employees, partners.
Without entering into a non-disclosure agreement, the confidential information can fall into the hands of competitors and harm the owner and originator of the information. In other words, non-disclosure agreements can allow businesses to disclose confidential information without the risk of losing ownership of that information.
On the other hand, companies and business partners use non-compete agreements in order to prevent unfair competition from a former employee, business partner or contractor. By doing business, employees, independent contractors and business partners have access and learn information about a business that they can later use with a competitor or for themselves to start a separate but similar business. In order to avoid this type of harm, a non-compete agreement prohibits the recipient of the knowledge and information from competing against the disclosing party.
In general, non-disclosure agreements are enforceable in every state across the United States.
However, issues with enforcement arise when the terms of the non-disclosure agreement are overly broad, the agreement lacks consideration, the information it seeks to protect is not confidential or valuable, the disclosing party fails to take reasonable efforts to maintain its secrecy, the information it seeks to protect has already been disclosed to third parties or it is difficult to quantify damages.
In the United States, non-compete agreements are far more controversial than non-disclosure agreements with courts refusing to enforce such agreements. For example, California essentially prohibits the use of non-compete agreements and has laws that indicate that such agreements are invalid and unenforceable. In other jurisdictions such as Oklahoma, New York and Colorado, non-compete agreements are unenforceable or enforced in limited circumstances. However, in Florida, which is a pro-employer state, non-compete agreements are enforceable.
Overall, most courts and jurisdictions will enforce a non-compete agreement as long as the disclosing party of the agreement has a reasonably competitive business interest and the restrictions are rational.
• Non-disclosure agreement is a mutual agreement and non-compete agreement is one sided.
A non-disclosure agreement is generally mutual meaning that it is designed to protect both of the parties to the agreements. For example, when two companies enter into an NDA to explore the possibility of working on a real estate development project together, both companies will likely disclose confidential and private information to each other and the NDA will protect the information exchanged by both companies and specify what information is confidential.
On the other hand, a non-compete agreement is typically one sided or unilateral particularly because it is designed to protect one business from unfair competition from the other party to the agreement – one party requires the other party not to compete without providing any other benefit to the party being restricted.
In today’s business environment both non-disclosure and non-compete agreements are always important and appropriate to use.
Contact us or schedule a consultation with your business lawyer in Miami, Florida USA to help you understand the difference between non-disclosure agreement and non-compete agreement and assist you with your NDA and non-compete.
Malescu Law P.A. – Business Lawyers