HOW IS YOUR COMPANY’S PROPRIETARY INFORMATION PROTECTED?

The phrase “restrictive covenants” is often used by attorneys to categorize the different ways (exclusive of intellectual property protections like copyrights, trademarks, service marks, patents, etc.) that proprietary business information and assets are safeguarded. Generally speaking, there are three basic categories of restrictive covenants that often get lumped in as “noncompete agreements” (although, as mentioned below, an actual “noncompete agreement” is something more specific):

  • Nondisclosure Agreements = Also referred to as “confidentiality agreements”, these agreements typically seek to protect a business’ confidential and proprietary information from disclosure to unauthorized third parties.
  • Nonsolicitation Agreements = These agreements target the protection of a business’ key relationships, including those with employees, clients, etc., preventing the party subject to the restriction from soliciting or otherwise directly contacting the protected persons/entities during (and often, for a certain period of time after) the duration of the restriction.
  • Noncompete Agreements = An actual “noncompete” agreement prevents the party subject to the restriction from working for a competitor of the business, in the particular line of the business, or some combination of the two.

Each of these agreements could be placed on two separate spectrums involving competing elements: (i) the amount of protection afforded to the business; and (ii) the likelihood of enforceability.

In terms of “protection”, a noncompete agreement often affords the most, followed (in order) by a nonsolicitation agreement and a nondisclosure agreement. The reason for this is that a noncompete agreement essentially prevents the person subject to it from doing anything that competes with your business, forcing that person to seek work that is completely unrelated to your business and the professional areas/lines that relate to it.

On the other hand, in terms of “enforceability”, a nondisclosure agreement often is the most likely to withstand a court’s scrutiny, followed (in order) by a nonsolicitation agreement and a noncompete agreement. The reason for this is that the standard of evaluating these restrictions always comes down to “reasonableness”, and protecting your proprietary information from disclosure is much less intrusive than actually restraining someone’s livelihood.

Overall, the key in determining which approach to use is to first define your goals for protecting your proprietary information and assets, then tactically choose the most reasonable way to accomplish them. Well-drafted nondisclosure and nonsolicitation agreements (or a combination of the two) often cover everything that needs to be protected without venturing into the much murkier waters involving noncompete agreements.

If you would like to discuss this with an experienced business attorney, please do not hesitate to contact us.

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