Being in the business industry means dealing with different companies, organizations, and individuals for crucial matters. Each transaction entails the risk of entrepreneurs spilling their trade secrets, training methods, and other important information that might be used against them. The non-disclosure agreement and the non-compete agreement ensure that any matter shared within a discussion will be used for the intended purpose and won’t get into the wrong hands. This helps them continue engaging in external affairs without the fear of exploitation.
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What Is a Non-Disclosure Agreement and a Non-Compete Agreement?
A non-disclosure agreement and a non-compete agreement are two separate agreements used for specific purposes. They are often created as separate documents and used for completely different transactions. They can also be different clauses for a contract.
In a non-disclosure agreement, confidential or proprietary information is shared between two or more parties for certain purposes. The provisions of this agreement clarify what information scope is deemed confidential and should be prohibited from disclosure to an uninvolved third party.
On the other hand, a non-compete agreement legally restricts current and former members of an organization from entering or starting a similar business or profession in the same field or industry against them. It’s common between employers and employees where the latter agrees not to join or get involved with a competing company during their employment and a specific period after their contract termination.
How to Make a Non-Disclosure and a Non-Compete Agreement
Here are some basic steps when drafting non-disclosure and a non-compete agreement:
Step 1: Specify the Involved Parties
Any business agreement should clearly identify which individuals or entities are involved in implementing its provisions. This helps all parties understand who are carrying out the different rules and responsibility stipulated in the document. When conflicts occur, it’s easy to identify which are to be held liable for certain offenses.
Step 2: Determine the Scope of Confidentiality
In a separate clause of your business contract, provide a comprehensive list of specifications on what types of information are to be considered confidential in carrying out the business non-disclosure agreement. This section should also specify who has permission to access the information and those who do not. If there’s a need to disclose confidential information to a third party for business transactions, provide a procedure on how the action can be warranted, such as submitting a consent form.
Step 3: Determine The Restricted Industries and Activities
As for the part of the non-compete agreement, determine what restricted industries they should keep from joining and the activities they should avoid. For example, if you own a restaurant, you can have your chefs sign a non-compete agreement that will keep them from building their own restaurant the same as yours. You can also keep them from using your personal recipes and menu, hiring your employees, or urging them to join their new company.
Step 4: Lay the Agreement Terms and the Breach Penalties
These restrictions shouldn’t last longer than they need to. Include when the agreement term ends by including a timeline. Specify the agreement’s start and end dates, so the parties understand when they’re allowed to perform the stated prohibited activities again. Should they deliberately choose to breach the agreement, include what penalties they might be facing.
How is a non-disclosure agreement different from a non-compete agreement?
A non-disclosure agreement is often one-sided and often non-negotiable, while a non-compete agreement can be mutual between parties and is open for further discussion.
What is the other type of a restrictive covenant aside from a non-disclosure agreement and a non-compete agreement?
The other type of restrictive covenants besides the two mentioned above is the non-solicitation agreement.
How long should a non-disclosure agreement and a non-compete agreement last?
A non-disclosure agreement can last up to five years, while a non-compete agreement can expire in three years.
The industry is teeming with competitors waiting for something that they can strike you with. There’s a reason why you hide your information and business processes from them. Stay on the safe lane with reliable non-disclosure and non-compete agreement templates that you can find on our display. Get yours now!
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