Confidential Information Agreement Adds Layer of Protection From Misuse of Proprietary Business Data | Parker Poe Adams & Bernstein LLP

As a result of the recent string of legislative and regulatory efforts to curb or eliminate the use of non-competition agreements in employment, employers may have lost sight of relatively non-controversial measures they can take to prevent unfair competition following an employee’s departure. The most basic of these protections is a contractual confidential information agreement (sometimes called an NDA) with employees.

Unlike a noncompete, the NDA does not seek to limit where an employee can work after leaving their current job. It also doesn’t seek to prohibit them from soliciting their former employer’s customers. The agreements simply require that the employee not use the employer’s confidential and proprietary business information in pursuing such opportunities. Even states that prohibit use of noncompetes allow employers to enforce restrictions on use of their confidential information.

When asked about using NDAs with employees, some companies instead rely on federal or state trade secret protection laws. While those laws do provide remedies against unauthorized disclosure, the statutory definition of trade secrets may be more narrow than that provided in the NDA, and the employer may have to demonstrate that it took certain steps to secure such information. An NDA can apply where the former employee’s actions do not rise to the level of a trade secret violation. It can also serve as an additional cause of action against employees subject to statutory claims.

NDAs need to be drafted in compliance with applicable state laws. Some states limit the period of time that the restrictions can be in place, while others allow an indefinite restriction so long as the business information remains confidential. A few states may also require some form of consideration beyond continuing employment to support the NDA. While some states may enforce an NDA that is part of the employer’s handbook, in most situations, a separate, mutually signed agreement provides the best argument that the employee has a contractual obligation not to disclose the employer’s key business information.

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