Many businesses in the New York City area rely on secrecy or confidentiality to protect their business secrets. Two types of agreements are used to accomplish this end: non-compete agreements (NCA) and non-disclosure agreements (NDA).
NCAs are used to prevent key employees from accepting employment with a competitor, and NDAs are used to prevent employees from disclosing company secrets to a competitor. Understanding the basic terms of these agreements can be essential to a business’ ability to protect its secrets.
The basics of an NCA
A non-compete agreement is a contract between the company and each of its employees. Typically, the employee agrees that he or she will not accept employment from another entity engaged in the same business within a certain amount of time.
In order to be enforceable, the NCA must have benefits flowing from the employer in exchange for the employee’s promise to refrain from working for a competitor. This exchange – called “consideration” – is often the company’s agreement to hire the employee. An NCA that is executed after the employee begins work may not be enforceable unless it is accompanied by a specific additional benefit, such as a promotion or a signing bonus. The NCA must also be reasonable in its geographic scope and duration.
The basics of an NDA
Like an NCA, an NDA is a contract between the company and its employees. The purpose of an NDA is to prevent employees from disclosing important confidential information to competitors. The agreement should define the term “confidential information.” Information commonly considered to be confidential includes customer lists, formulas or plans for the company’s products, and financial information. The information must, of course, be secret; it cannot be known to the general public.
Enforcing an NDA or an NCA
Both types of agreements rely on litigation for enforcement. The company generally starts a lawsuit against the employee who breaches the agreement. The complaint alleges facts necessary to prove a breach of the agreement and the monetary damages caused by the breach, and most such lawsuits seek injunctive relief against the breach.