11/06/2012

Non-Compete Agreement vs. Non-Disclosure Agreement

There are non-compete agreements and there are usually employment agreements that contain either non-compete agreements, or what we call the non-disclosure of trade secret clauses, or of course sometimes called confidentiality provisions in employment agreements. The difference between the two is that a non-compete seeks to restrict your employee or contractor from competing against you within a certain geographic region for a certain period of time.

Announcer: Welcome to the Trade Secret Law Radio. We bring you the best in trade secret news, legal advice, and information. From trade secret misappropriation to trade secret agreement drafting and negotiation, we cover the issues here.

Matt: Hi, it's Matt Plessner and welcome back to Trade Secret Law Radio. We'll be discussing non-compete agreements versus non-disclosures of trade secrete clauses and the difference between the two, and many more. We're speaking again with Trade Secret Attorney Mark Clark from Traverse Legal, PLC. Mark, thanks again for being back with us today.

Mark: You're welcome, Matt. It's always nice speaking with you.

Matt: Well, thank you. The feeling is mutual. To start us out, could you please tell us the difference between non-compete agreements and non-disclosures?

Mark: Well, there are non-compete agreements and there are usually employment agreements that contain either non-compete agreements, or what we call the non-disclosure of trade secret clauses, or of course sometimes called confidentiality provisions in employment agreements. The difference between the two is that a non-compete seeks to restrict your employee or contractor from competing against you within a certain geographic region for a certain period of time.

A non-compete agreement must be established and legitimized by having a reasonably competitive business interest that is being protected from the employer's side. A non-disclosure of trade secret clause does some of the same things, but it's a little bit narrower. It simply restricts and prevents the employee or contractor from disclosing company trade secrets or other confidential information that's defined within the agreement during the relationship and once the employment relationship is ended.

Now, a trade secret can be anything from what you might ordinarily think that it is, such as the secret recipe if you will, all the way down to pricing or customer or client lists that are prevented from disclosure. Now there is some overlap between a non-compete agreement and a non-disclosure of trade secret provision in an employment agreement or confidentiality agreement, and there is a discussion or debate about whether or not it's appropriate or desirable to have both when employing an employee or a contractor.

Matt: Now, Mark, would you say one is better than the other?

Mark: Well, both have their benefits. As I've indicated, there's some area of discussion among the legal community that sometimes it is not appropriate to have both in an agreement. I've personally been involved in court cases where the argument is made that because the employer has both a non-disclosure of trade secrete clause and a non-compete that the non-disclosure of trade secret clause in and of itself obviates the need for a non-compete agreement.

You'll recall that I've indicated that in order to validate a non-compete agreement that the employer must establish a reasonably competitive business interest that is being protected. Some will argue that if a non-disclosure of trade secret provision protects that reasonably competitive business interest of the employer's, then there is no legitimate reasonably competitive business interest being protected by the non-compete and that it's unnecessary.

Based on the outcomes of those cases, my own personal preference is to include both as a matter of practice. A recent Michigan case that's unpublished, it illustrates this from the other standpoint. In that particular case, Michigan One Funding, LLC v. MacLean. The employer attempted to prevent the employee from going to work for a competitor without a non-compete agreement, but based upon a non-disclosure of trade secret provision in the employment agreement.

The employer argued that the non-disclosure of trade secrete provision could only be enforced by preventing that employee from going to work for a direct competitor. The employee went ahead and stipulated to an injunction that prevented him from disclosing any trade secrets of his former employer.

The court in that case found that because there was an established non-disclosure of trade secret clause and that the employee was stipulating to the enforcement that it was appropriate in the absence of a non-compete for him to go and work for a direct competitor of his former employer.

So I think that to omit either a non-compete agreement or a non-disclosure of trade secret agreement or provision like that in an employment agreement is usually a mistake on the employer's part. So I always recommend that when you identify the need for a non-compete agreement that an employer include both non-compete provisions and non-disclosure of trade secret provisions in their employment agreements.

Matt: Well, Mark, I think that should help people understand the difference between the two, and I want to thank you once again for joining us today.

Mark: Matt, it's always my pleasure.

Matt: Thank you for tuning in to Trade Secret Law Radio with me, Matt Plessner.

Announcer: You've been listening to Trade Secret Law Radio, where trade secret protection, legal cases and defenses are always the topic of the day. Whether you are a trade secret attorney, business looking to protect your trade secrets, or have been accused of trade secret theft, we will answer your questions here. 

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