Although you can spend considerable time drafting and reviewing non-disclosure/non-compete agreements, they are often necessary to preserve your company’s competitiveness.
In saturated or innovative fields, the loss of proprietary information or experienced staff can mean the difference between profitability and bankruptcy.
While you may see the two terms used similarly, the function of each document is unique. It’s important to know which document suits your needs. And to achieve maximum protection, competitiveness, and value from these contracts, a time-saving artificial intelligence-based contract review solution is essential.
Comparing Non-Disclosure vs. Non-Compete Agreements
While non-disclosures and non-competes are legally binding contracts, understanding the differences can help protect your business from information leaks and unlawful competition.
|
Non-Disclosure (NDA) |
Non-Compete |
|
|
Parties |
A business and another business, investor, consumer, employee, or vendor |
An employer and employee |
|
Who It Affects |
One-way or two-way, with both parties potentially sworn to secrecy |
Typically one-way |
|
What It Does |
Limits use and sharing of any information deemed “confidential” for one or both parties |
Limits an employee’s ability to work with a direct competitor for a defined period, and often within a defined geographic region, after employment ends |
|
Scope |
Broad |
Limited |
|
Enforceability |
Generally allowed in all states to protect proprietary information, but barred in states like CA, NY, and WA when used to shield abusers or illegal acts |
Banned in CA, DC, ND, and OK, as they are seen as unfairly limiting worker mobility; Banned for low wage workers in IL, MA, MD, NV, OR, and WA |
Choosing the Right Type of Confidentiality Agreement
Since the Harvey Weinstein scandal, NDAs have been a hot topic in the news and government sessions. While companies deserve the right to confidentiality when it comes to trade secrets, patents, and operations information, they should not be able to hide behind a document on matters like sexual harassment, discrimination, abuse, and unlawful favoritism. As a result, there are limits on what can—and cannot—be included in NDAs.
If necessary, a non-disclosure should include:
- Clearly specified parties pursuant to the agreement
- A detailed description of what information is confidential and any exclusions
- Details about the receiving party’s contractual obligations
- The period for which the NDA is enforceable
- Remedies for breach of the NDA
Non-competes are similarly controversial, as this type of document can limit an individual’s right to seek gainful employment once terminated or when pursuing other employment opportunities. In 2021 alone, legislators introduced 66 non-compete bills spanning 25 states. State prosecutors have been particularly aggressive in going after companies that break the law—with penalties ranging from $350 to $110,000. Given the trends, it’s a good time for businesses to review their use of non-competes and perhaps use them sparingly, if at all.
Before choosing a non-compete, businesses should explore:
- Are the concerns of the business legitimate?
- Is the specified period reasonable?
- Is the geographic scope reasonable?
- Does the employee’s scope of activity meet the definition of “competition?”
- Are appropriate income thresholds set?
- Which professions are expressly prohibited?
- What notice periods are given?
Achieve Next-Level Competitiveness With the Help of AI
Beyond knowing what type of document your business needs and what to include for enforceability, you’ll need to be able to deploy these contracts quickly and at scale. Increasingly, legal departments rely on contract review and negotiation tools like LexCheck to help them review drafts quickly, maintain consistency, and analyze risk.
When you receive a non-disclosure,send it through the AI-powered platform to access full redlining, review, and risk analysis in only five minutes. LexCheck compares your draft to a dozen or more sample agreements uploaded to the database, as well as your corporate legal playbook.
Legal teams can add custom automation rules to implement changes in position or standard clauses to maintain compliance. Through advanced artificial intelligence technology, LexCheck identifies errors, omissions, inconsistencies, and unclear language—and provides specific, context-based guidance to help teams review more efficiently.
Download our 7 Steps to Optimize Your Contract Review Process to see how our award-winning platform accelerates contract review and negotiation for wide-ranging business contracts, including non-disclosure and non-compete agreements.