Nondisclosure, nonuse and noncompete agreements can be powerful agreements that protect your startup company's confidential information and business prospects. In drafting these agreements, however, it's important not to overreach.
The nondisclosure and nonuse parts of agreements, when drafted with reasonable restrictions, can be widely enforceable. These agreements restrict present and former employees and contractors from disclosing confidential information and in using it for any purpose other than designated projects for the company owning the information. Noncompete agreements, however, raise some nettlesome issues.
In states like California and Tennessee, State constitution provisions and the decisions of courts have substantially restricted the ability of companies to tie up workers with noncompete agreements. Even in states such as New York and New Jersey, where noncompete agreements are permissible, courts tend to adopt the rule of reason – and courts in these States have generally had a restrictive view of what is “reasonable”.
A noncompete agreement should not prevent a former employee from working at all jobs for which he or she is qualified. Absent special circumstances, it's difficult to obtain an enforceable agreement for more than a year or two, regardless of what is written on paper.
To draft an agreement that is enforceable in court, it's important to be strategic. Identify employees who have access to information that would be harmful to your company if disclosed to a competitor or used by the departed employee while employed by a competitor. Examples include:
- Developments that have not yet been patented
- Customer data that is not generally known
- Trade secrets that are valuable to the company
Once you have identified people in your company who have access to information you want to protect, work with your legal counsel to develop agreements that are not overreaching or overbroad. Identify the confidential information that you need to protect. And work with your counsel to tailor the duration, scope and geographic restrictions to the employee's job.
The more tailored your agreement, the more enforceable it will be should a former employee test it in court or should your company seek to enforce it against a former employee.