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| Chilling Effects Clearinghouse > Trade Secret > Resources > Legal Contracts that Protect Your Trade Secret | Location: https://www.chillingeffects.org/tradesecret/resource.cgi?ResourceID=88 |
Abstract: There are two types of legal contracts that are widely used to help businesses protect trade secrets: (1) non-disclosure agreements; and (2) non-compete agreements.
During the course of business, you may have to disclose your business secrets to your employees. What happens when you have a disloyal, untrustworthy, and dishonest employee? The employee may know your secrets. Is there anything that you can do to stop that employee from disclosing your secrets to others?
A non-disclosure agreement (NDA) is a confidentiality agreement that can be used to protect trade secrets. Often, during the course of business negotiations and deals, your secret information may be disclosed to employees or business partners. A NDA contract requires that the information be kept a secret. The provisions of the contract usually require the signature of the person receiving the information and legally requires the person to keep the information confidential. If someone who has signed a NDA with you uses your secret without your authorization, you can request a court to stop the violator and sue for damages.
Click here to see a sample Non-Disclosure Agreement.
(2) Non-Compete Agreements
During the course of business, you may have to disclose your business secrets to your employees. But what happens when these employees leave your company? They know your secrets and there is nothing stopping them from telling others. By requiring your employees to sign a noncompete agreement, employees must agree not to work for a direct competitor for a certain amount of time after leaving your company. The theory behind this is that after a certain amount of time, your trade secret may no longer be valuable or will have changed as your business advances.
It is important to be aware that courts use a rule of reason in deciding whether a noncompete agreement is legal. In other words, the terms of a noncompete agreement must be reasonable as to the duration, territory, and scope of the activity. A one-year time restriction from a competitor’s business is generally regarded as sound. A restraint is generally enforceable if it is fairly designed to protect the employer’s trade secrets. For more information on the particular laws in your jurisdiction, please contact an attorney in your local area.
However, in certain states, there are restrictions imposed on enforcing noncompete agreements against employees and some jurisdictions have even barred them. For example, California has state laws that heavily restrict, and in some cases, completely bar noncompete agreements. California does not apply a rule of reason in evaluating an agreement which prevents an individual from pursuing any lawful occupation, but instead, requires that the trade secret holder prove the noncompete agreement is absolutely necessary to protect established trade secrets. If you have any questions, you may wish to contact a lawyer in your local area to obtain your state’s laws.
Click here to see a sample Non-Compete Agreement.
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