The work world is constantly expanding. But as employees leave (whether on their own or through termination), employers become justifiably concerned about the information former employees take with them. This is further compounded though increasing technology mediums and, unfortunately, technology hacks.

Below are three common legal documents used to mitigate risks with departing employees and whether or not they would work for your organization. Think of them this way:

• Non-Disclosure Agreement (NDA): “Don’t reveal our secrets.”
• Non-Compete Agreement (NCA): “Don’t compete with us.”
• Non-Solicitation Agreement (NSA): “Don’t take our customers or employees.”

Non-Disclosure Agreement (NDA)

An NDA focuses on confidential information and is traditionally used to protect trade secrets, business strategies, financial information, customer lists proprietary processes, and product designs or research. NDAs typically prohibit sharing confidential information with outsiders, using confidential information for personal benefit, or disclosing sensitive information after employment ends.

An NDA does not prevent someone from working for a competitor. It only prevents misuse of confidential information. Most states do not have any restrictions against NDAs.

Example: An HR manager leaves a company. Even years later, they generally cannot disclose employees’ compensation data or internal workforce planning information if covered by an NDA.

Non-Compete Agreement (NCA)

A non-compete agreement limits a person’s ability to compete directly with a former employer.

It typically restricts working for competitors, starting a competing business, or providing competing services.

While NCAs may be tempting, more states are cracking down on them, such as California, Minnesota, North Dakota, Oklahoma, and Washington, D.C. outright banning them. Many other states allow non-competes only for certain employees or impose income thresholds, notice requirements, and reasonableness standards. Courts will also look whether a non-compete is reasonable in duration (i.e. usually no more than 6-24 months), reasonable geographically, and whether or not it is necessary to protect legitimate business interests.

Example: A software executive leaves Company A and agrees not to work for any direct competitor in Illinois for one year.

Non-Solicitation Agreement

A non-solicitation agreement protects a company’s customers, employees, or vendors. Unlike a non-compete, a non-solicitation agreement usually allows someone to work in the same industry, but restricts them from targeting specific relationships developed through the former employer.

Common language in NSA’s include preventing former employees from contacting former customers, recruiting coworkers, or encouraging employees and/or clients to leave the company.

While non-solicitations are not as restricted as non-competes, in many other states they are only seen as enforceable if they are narrowly tailored to protect legitimate business interests.

Example: A recruiter leaves an agency and joins a competitor. They may be allowed to work for the competitor, but they cannot actively recruit their former agency’s employees for a specified period.

Regardless of which option you choose, any legal document should be thoroughly reviewed by an employment attorney or experienced professional.  

 

This information does not constitute legal advice.