When hired, a new employee might be asked to sign a non-disclosure and non-compete agreement. By signing it, the employee promises not to do certain things in exchange for employment. This agreement is an enforceable legal contract.
What is a Non-Disclosure and Non-Compete Agreement?
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A non-disclosure and non-compete agreement are actually two different but complementary agreements. By signing an employment contract containing non-disclosure and non-compete provisions, an employee is promising two different things. With a non-disclosure agreement, the employee promises not to tell third parties information about the company such as trade secrets, customer lists, special work processes and any other confidential material that the company wishes to remain private. With a non-compete agreement, the employee promises not to work for a competitor of the company within a specified geographical range for a specified period of time after his employment period with the company ends.
Why Do Employers Require a Non-Disclosure Agreement?
Employer's often spend a significant amount of time and money developing processes, procedures and policies that the employer hopes will give their business an edge over their competitors. For example, a manufacturing company may develop a process that allows them to produce their product more efficiently, which means they can make more product to sell. A sales division may work years developing a customer list that not only contains contact information, but information about the customer's needs and preferences. It is crucial to the employer that these types of information do not become known to its competitors because if they do, the company loses any advantage it may have in the marketplace. Therefore, an employer will require its new hires to sign a non-disclosure agreement to protect this kind of information from third parties.
Why Do Employers Require a Non-Compete Agreement?
An employer also spends effort and money training its employees. The employee learns specific skills and becomes privy to confidential information about how the company does business. An employee becomes adept at his job and may grow to have particular knowledge and insights about the company's business practices that might be a valuable commodity to a competitor should the employee change allegiances and go work for the competitor. A salesperson, for example, develops significant relationships with her customers and if that salesperson goes to work for another company selling the same type of product, customers may start buying from the new company because they want to continue to work with that salesperson. A non-compete agreement prevents this from happening by preventing the employee from going to work for a nearby competitor for a specific period of time if the employee ever stops working for the company. A non-compete agreement prevents a former employee from taking knowledge gleaned from working at a company to be used by a competitor of that company.
How is a Non-Disclosure and Non-Compete Clause Enforced?
Typically, an employee does not have any problem with keeping his employer's information confidential while he is employed. It is usually after the employee decides that he does not want to work for the company that the significance of a non-disclosure and non-compete agreement is felt. An employee who has signed such an agreement must not work for a competitor within a specific geographical area, for the amount of time specified in the agreement. For example, if the agreement provides that the employee is not permitted to work in the entire state of Ohio for 18 months, if the employer learns that he is immediately working for a competitor down the street, then the employer will likely file a legal action against not only the former employee but the former employee's new employer.
What Legal Action is Brought?
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The employer will likely file a motion for a temporary restraining order along with a motion for a preliminary injunction and complaint for breach of contract. A temporary restraining order requires the employee to stop working for the competitor immediately until a full hearing can be conducted. After the hearing is conducted, a judge may order a preliminary injunction, which will prevent the employer from working for the competitor for the entire time the breach of contract action is pending, which may be up to one year. The breach of contract action accuses the former employee of breaking the terms of the non-disclosure and non-compete agreement by going to work for the competitor. If the employer wins, it not only prevents the former employee from working, but it may also get money damages awarded in its favor.