Use of Nondisclosure Agreements to Protect Your Company
Nondisclosure agreements, also referred to as NDAs, are a common legal instrument used by companies to protect sensitive company information. NDAs can be used to protect customer lists, patents, trade secrets and other information that gives a company a competitive advantage.
An NDA protects a company from unauthorized disclosure of its confidential information. Through an NDA, a business can ensure that, whatever information that it shares with others that gives it a competitive advantage, is not shared with competitors. In case the agreement is violated, the business will then have recourse and can seek damages.
When to Use an NDA
Employees – Employees need to have access to a company’s sensitive information to perform their jobs. However, in order to protect the employee from sharing this information with the company’s competitors, businesses should use nondisclosure agreements. An NDA can prevent the employee from taking the information accessed through the job to competitors or use it for its own gain.
Proprietary Information – When a company has proprietary information such as a trade secret, financial information or other sensitive information it should be protected from unauthorized use. An NDA will inform the other party of the confidential nature of the agreement so that the information is not shared with others.
Product Details – When a company is seeking investment from investors or considering licensing with another company to expand its business, it is important to have the other party sign an NDA. An NDA will ensure that the other party knows that the information being shared is proprietary and that it cannot take this information and use it to develop its own product.
Drafting an NDA
A nondisclosure agreement should be drafted such that it protects the company’s assets. An NDA should be clear and provide disincentives for violating it. Therefore, when drafting an NDA, it is important to clearly define the information that is sought to be protected. The terms of the agreement should clearly define the information. If the terms are too broad, the agreement may not be enforceable. It is advisable to clearly define the confidential information.
The agreement should also clearly specify the parties to the agreement as well as the duration of the agreement. Finally, the NDA should create a disincentive for its violation. Usually, a term regarding prevailing party is entitled to attorneys’ fees creates the necessary disincentive. If the party violates the agreement and loses its case, it will not only be liable for damages but also attorneys’ fees.
Every business should utilize a reliable NDA that it can use with employees, investors and potential partners. Drafting an NDA requires diligence, strategy and clarity.
The Pennsylvania business attorneys at MacMain, Connell & Leinhauser are well-versed in drafting enforceable contracts and can assist your business in developing a strategy and ensuring that your business protects its proprietary information through a strong nondisclosure agreement. For assistance in drafting an NDA, contact us online or at 484-318-7106. Our office is located in West Chester, Pennsylvania. We serve clients throughout Chester County, Philadelphia and Pennsylvania.
The Future of Non-Compete Agreements
Shortly before the close of 2017, the Pennsylvania legislature introduced a bill that would ban non-compete agreements in employment contracts. Under Bill 1938, known as the “Freedom to Work Act,” non-compete agreements would be not only unenforceable, but null and void.
The bill has several stated goals, including lowering the unemployment rate, enabling an increase in income for highly-skilled employees, allowing employees to make a living wage and provide for their families by “maximizing their talents,” and allowing businesses to hire workers of their choice. With this bill the Commonwealth hopes to attract high-tech companies and discourage workers from leaving the state for better opportunities.
Additionally, the bill intends to promote the following:
- Increased wages and benefits
- Unrestricted trade and mobility of workers
- Innovation and entrepreneurship
Pennsylvania joins a trend of proposed legislation to limit non-compete agreements that includes New Jersey, Maryland, New York, Massachusetts, Missouri, and New Hampshire among others. In California, North Dakota, and Oklahoma, legislation has already passed that bans almost all forms of non-compete agreements.
Definition of Non-Compete
The Freedom to Work Act defines a non-compete agreement broadly as “[a]n agreement between an employer and employee that is designed to impede the ability of the employee to seek employment with another employer.” As there is no mention of non-solicitation agreements, it seems it would still be possible for an employer to enter into such an agreement with employees.
Exceptions are made for agreements deemed reasonable that concern the sale of a business, and those that involve the dissolution of a partnership or limited liability company. Any non-compete agreements that existed before the effective date of the new law would also be exempt.
Provision for Attorney’s Fees
Included in the proposed legislation is a provision that cases concerning Pennsylvania residents shall be decided in Pennsylvania state court, under Pennsylvania law. There is also a provision that awards attorney’s fees and damages, including punitive damages, to employees who sue their employer over a non-compete agreement and win. This essentially provides employees with incentive to sue, should the bill be enacted, and they find themselves subject to a non-compete clause.
Changes at the Federal Level
There is also proposed legislation at the federal level that seeks to reform the misuse of non-compete agreements. Employers must watch carefully for any changes in state and federal legislation, and are advised to be prepared to use other ways to protect proprietary information. Non-compete agreement forms should be reviewed regularly, to ensure they comply with the law in all jurisdictions where they are in use.
MacMain, Connell & Leinhauser is well versed in the complexities of Pennsylvania employment law and can provide you with highly skilled representation. Call 484-318-7106 or contact us online to schedule a consultation with one of our experienced attorneys. From our office in West Chester, our experienced attorneys serve clients throughout Chester County and Philadelphia.