The Differences between a Confidentiality Agreement and a Non-Compete Agreement
In today’s business climate, where the success of many businesses is built on proprietary products and information, keeping that information private can be critical. As an employer, when you’re bringing in key employees, you want some assurances that they won’t learn the important components of your business and then either take them to a competitor or open their own competing business. You’ve likely heard of confidentiality agreements and non-compete clauses/agreements, but may be uncertain—are they the same thing? If not, what are the differences? What will they protect?
These two legal documents, though often thought to be interchangeable, are two distinctly different tools that business owners may use to protect they business interests.
A confidentiality agreement, sometimes referred to as a “non-disclosure” agreement, is simply a legally enforceable document wherein the signatory promises not to share or “disclose” certain information obtained from a company. Key employees often sign a confidentiality agreement, but companies may also ask vendors, partners or others with access to confidential or proprietary information to sign such an agreement.
Confidentiality agreements don’t generally prohibit a person from working for a competitor—instead, they restrict a person’s ability to use or disclose information. As such, their terms tend to be broader and more exclusive than the terms of a non-compete agreement.
Non-compete agreements apply generally to employees, and place restrictions on their rights to leave the company and go to work for a competing company. Because of concerns about preventing a person from being gainfully employed, particularly after being fired or terminated by a company, non-compete agreements tend to be narrower in scope, and may be more susceptible to invalidation by a court, if the terms are too broad. Courts will typically frown on non-compete agreements that are:
- For too long a period of time
- Cover too broad a geographical area
- Are too expansive in the activities which are prohibited
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