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Is it Time to Update Your Company’s Non-Disclosure/Non-Compete Agreement?
An employee non-disclosure/non-competition agreement (NDA/non-compete) is a vital part of any company’s intellectual property protection program. Too often though, companies use the same form agreement for years even though its legal value may have eroded due to changes in the law or changes in the business. The following are some things to consider in determining whether it may be time to update your company’s NDA/non-compete.
Has Your Company Experienced Changes in its Workforce?
Smaller companies that begin as a close-knit, highly-invested group often consider using their first employee form NDA/non-compete when the first “outside” employees are hired. Often this first round of hires is mainly administrative, has limited (if any) access to critical company trade secrets, and therefore does not pose the type of threat from which an NDA/non-compete is designed to protect the company. It is not uncommon for these companies to use a fairly non-restrictive, general standard-form agreement at first and to continue to use the same form even after the company begins hiring additional, more specialized employees with greater access to (and knowledge of) the company’s trade secrets. It is only after one of these newer, higher-level employees defects with critical business information in hand that the company comes to realize that its NDA/non-compete should have been tighter and more restrictive.
Has Your Company’s Business Changed?
Similarly, it is not uncommon for a company’s development of new products, business methods, or marketing channels to outpace the protection afforded by its NDA/non-compete. The owner of a small software products company was disheartened recently to learn that his company’s NDA/non-compete would pose little obstacle to a key employee who had defected to a competitor. The form agreement did very clearly and specifically prevent his employees from engaging in “…the business of providing security software to accounting firms.” The problem? He was no longer in the business of providing security software to accounting firms. His company had, for the last three years, only developed commercial websites for online retailers. The employee, therefore, was not restricted by the terms of the company’s NDA/non-compete from joining another commercial retail website development firm.
Does Your Company Have More to Protect Now than it did in the Past?
Beyond the obvious misalignment between the company’s business and the protection afforded by its NDA/non-compete described above is the more gradual misalignment that occurs as a company slowly, but surely develops more critical trade secrets to protect. A company that starts as a reseller, or that engages heavily in shadowing the moves of its competitors at the start, may need to gradually give greater consideration to the value of the technologies and business methods it develops as the company grows and evolves. It is not uncommon for the protections afforded by a company’s NDA/non-compete to seriously lag behind the company’s need to protect the valuable trade secrets it gains over time.
Has Your Company Added Employees or Contractors in Other Jurisdictions?
Companies that expand to multiple states often use the same NDA/non-compete agreement with employees in all of the states in which it does business. The NDA/non-compete typically originated in the company’s home state and the company simply continued using the same form agreement as it expanded to new states. The enforceability of these agreements, however, varies from state to state. Some businesses find out too late that an NDA/non-compete that was enforceable in its home state might not hold up in one or more of the other states in which it operates.
To discuss how we may assist you with creating or updating your company’s non-disclosure/non-competition agreement, or with other aspects of your company’s intellectual property protection program, please feel free to contact the firm.
This article is intended to provide general information only and is not intended to provide solutions to individual problems. Readers are cautioned not to attempt to solve individual problems solely on the basis of information contained in the article. Date of publication: February 25, 2013.
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