NDA vs Non Compete Agreements: Similarities, Differences, Uses, and Tips

Date
February 8, 2022
Category
Date
February 8, 2022
Author
Gary Sangha | Founder & CEO
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Non Disclosure Agreements (NDA) and Non Compete Agreements can be controversial, but they are necessary to protect intellectual property and trade secrets across wide-ranging industries. Whether hiring new employees, seeking investors, or completing a merger, businesses must occasionally share some of their most competitive and valuable information.

Knowing the difference between an NDA vs Non Compete Agreement protects your business interests

Understanding the differences between NDA vs Non Compete Agreements can help you decide the correct type of agreement for your specific needs. Additionally, recent advances in legal tech can help accelerate total time to execution for these types of agreements while reducing costs and risks.

What Is a Non Disclosure Agreement?

An NDA—also referred to as a confidentiality or trade secret agreement—can be a standalone agreement or, more commonly, one aspect of a larger employment contract or transaction agreement. The goal of an NDA is to prevent an independent contractor, employee, business partner, or affiliate from sharing documents, trade secrets, or confidential, proprietary information that could harm the business. Such proprietary information may include client lists, marketing materials, financial statements, training documents, formulas, or similar nonpublic information.

What Is a Non Compete Agreement?

A Non Compete Agreement is a one-way restrictive covenant where one party agrees not to engage with the counterparty’s competition, such as those that operate in the same line of business, target market, and geographic area. Such restrictions are often included as clauses in larger agreements, such as employment contracts or franchising agreements, and expire after a defined period. The restrictions are designed to protect the interests of the issuer—typically an employer or principal business—and limit the ability of the employee or partnering business to profit from whatever information it has been able to learn about the issuer because of the relationship. Signers should exercise care to be sure the scope of the contract is not too broad or unrealistic.

NDA vs Non Compete Comparison Chart

Characteristic

NDA

Non Compete

Definition

Restricts the disclosure and use of proprietary information

Restricts the use of proprietary information

Goal

Protect business trade secrets and confidential information

Protect the business from unfair competition

Scope

Strictly enforced by the courts

Subject to potential time and geographic limitations

Liability

Can be multilateral

Typically unilateral

Circumstances

Commonly used when employees, partners, investors, or other third parties require protected information to perform a job, complete a merger, or make a decision 

Commonly applies to employees when they leave, preventing them from sharing secrets or starting a business that directly competes with the company

Caveats

Can be difficult to prove that someone shared a secret that caused your company harm

Easier to prove that someone started a business or works for another company

Legality

Banned in California, New Jersey, and Illinois, which may expand in the future

 

Does not apply to lawyers, journalists, doctors, and those who serve the public interest

Banned in California, North Dakota, and Oklahoma, and may soon be restricted elsewhere

Does not apply to lawyers, journalists, doctors, and those who serve the public interest

How Legal Tech Helps with NDAs and Non Compete Agreements

Whether your company decides to proceed with an NDA, a Non Compete Agreement, or both, precise language is crucial if you expect the courts to enforce these legal protections.

Here are a few important questions to ask:

  • What are the applicable state laws you’ll need to consider to ensure compliance?

  • Can you prove you have a protectable business interest?

  • Is the enforceable period reasonable?

  • Is the agreement’s geographic scope related to the business territory or influence?

  • Does the agreement clearly, specifically, and fully describe the scope of protected information?

Most companies use templates, clause libraries, and corporate playbooks to ensure legal drafters, reviewers, and negotiators adhere to established standards to protect the company’s interests. However, it is common for those guidelines to not be fully adhered due to time constraints, heavy workloads, sloppiness, training shortcomings, confusion, and the like. 

Artificial intelligence (AI) legal tech provided by LexCheck can help your company ensure that your NDAs and Non Compete Agreements meet AI Digital Playbook guidelines and are error-free. Rather than having a junior associate spend hours, or even days, reviewing these agreements, you can have LexCheck complete the task in less than five minutes and return a fully-reviewed, redlined, and annotated agreement ready for final negotiations. 

Lexcheck’s AI-powered platform automates review and negotiation across wide-ranging contract types, including NDA and Non Compete Agreements. To learn more, contact us at sales@lexcheck.com. Request a demo to experience the technology first-hand.

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