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Are a Non-Disclosure Agreement and a Non-Compete Agreement the Same?

The short answer to the question is no. Non-disclosure agreements (NDAs) and non-compete agreements (NCAs) are related but they are definitely different agreements with different purposes. Both, however, are usually expected to be signed by employees, contractors, and others who work with trade secrets or other proprietary information prior to being given access to that information.

Non-disclosure agreements are more common than non-compete agreements mainly because the scope and purpose of the non-disclosure agreement is not as broad as the non-compete.

Put simply, a non-disclosure agreement is one in which the owner of a trade secret or other proprietary information requires someone else who will be working with that trade secret or proprietary information to first sign an agreement that they are not going to disclose the trade secret or proprietary information.

This is particularly common in the pharmaceutical, technology, and engineering industries as their business will be based, at least in part, on beating out the competition with new and proprietary products (think the next blockbuster drug). Of course, the agreement also governs what happens if the person actually does disclose the information.

Non-compete agreements, on the other hand, are usually used by employers in industries where the knowledge and contacts of the employee are valuable to competitors to prevent current employees from leaving and joining a competitor.

A classic example is a salesperson whose non-compete agreement prohibits them from joining a competitor in the same market for at least two years. The intent is to prevent the salesperson from using the advantage in contacts and knowledge that they gained at the first employer to the benefit of the employer’s competitors.

How are they similar?

To be sure, there is an element of overlap between the two agreements. Non-competition agreements are designed in part to prevent employees and contractors from divulging trade secrets and other proprietary economically beneficial information to potential competitors. It is also extremely common for employers to require employees or even third party contractors to sign one or both agreements as a condition of employment.

Of the two agreements, non-compete agreements are far more controversial with and frowned upon by the courts. The main reason for this is that a competition agreement is a method by which an employer can dictate the future of the employee even outside of their current employment. Most courts consider them a restraint on the employee’s ability to earn a living and on the public’s general interest in free trade. Since the burden of proving that the non-compete agreement does not place an onerous burden on the employee belongs solely to the employer as the maker of the agreement, the employer must be able to defend the agreement and what it requires. This is why courts will still allow narrowly tailored and well-written non-compete agreements that are reasonable and necessary to protect legitimate business interests to be enforced, albeit usually in very fact-specific situations.

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Both types of agreements, when properly drafted by an experienced attorney who understands your precise situation, can be extremely beneficial to a company to protect trade secrets, proprietary customer information, and maintain geographical hegemony. Of course, the key is to have well-drafted and reasonable agreements which the attorneys at Trembly Law can handle effectively and efficiently. If you are being asked to sign a non-disclosure or non-compete agreement, the attorneys at Trembly Law can help here too by advising you of the nature of the agreement, your requirements under it, and the enforceability of the agreement. Give us a call today to see how we can help at (305) 431-5678.

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