• Protecting Your Bottom Line: Non-Competes and Non-Disclosures
  • June 3, 2003 | Author: Eric W. Gunderson
  • Law Firm: Hodes, Ulman, Pessin & Katz, P.A. - Towson Office
  • As businesses continue to battle the current slow-down in the economy, there is a need more than ever to hold on to clients and keep confidential and key business information private in order to protect the bottom line. Two proactive ways of addressing these needs is the use of noncompete and confidentiality agreements. A noncompete agreement, also called a noncompetition agreement or covenant not to compete, is a contract between an employee and an employer in which the employee agrees for a certain period of time not to compete against the employer in any business of a similar nature as an employee, independent contract, owner, or investor within a certain geographic area. In short, it is an agreement that restricts an employee, both in time and in geographic limits, from competing with the employer. Employers, however, can only use these types of agreements in certain cases, and do not have unfettered ability to restrict an employee in whatever degree they feel appropriate. First, noncompete agreements are only valid in Maryland where the employer is attempting to protect certain "legitimate" interests (trade secrets, confidential information, lists of clients, etc.). Second, the restrictions have to be reasonable in scope. Restrictions on time and geographic area must be no longer in duration or wider in area than is reasonably necessary to protect the interests of the business. As such, there is no "one size fits all" for these agreements. What is reasonable depends on the type of business involved, the location of current competitors, the location of the company's clients, etc. Noncompete agreements, therefore, provide a way businesses can restrict their competition if they fear an employee within the company may use information gained during their employment to start up a competing company. In addition, it provides a way for companies to protect their investment in training employees since employees who sign such agreements are less likely to leave. A confidentiality agreement, although similar in nature to a noncompete agreement, is quite different. Also called a non-disclosure agreement, a confidentiality agreement is a contract between an employee and an employer in which an employee agrees not to steal, disclose, or otherwise misappropriate a company's important business information or trade secrets. Trade secrets can take many forms, including client lists, patented or copyrighted information, confidential market information, particular plans or processes, etc. Confidentiality agreements, in most cases, cannot exist indefinitely. Although they often can be enforced for much longer than a noncompete agreement, they cannot be enforced beyond the time the employee could discover the trade secret through legitimate means. However, they provide an excellent tool which companies can use to restrict and prevent the misuse or disclosure of trade secrets; often the lifeblood of a successful business. While there are other issues involved in implementing either or both of these agreements, such as what to include in them and when to ask an employee to sign them, properly drafted noncompete and confidentiality agreements can be effective tools in helping a business protect its client base and its confidential business information - goals a business must do to survive today's economy.