Many employment contracts contain agreements to the effect that, upon termination of employment, the employee shall not compete with the ex-employer. Similarly, many employment contracts contain agreements to the effect that the employee shall not disclose certain information. These agreements, which may be negotiated between the employer and employee, are called non-competition and non-disclosure agreements, respectively.
The principle function of a non-disclosure agreement is to identify information that is or is not protected. Confidential proprietary information that is protected by common law principles remains protected unless excluded by a non-disclosure agreement. Generally speaking, an employee should request that information which is not protected by common law principles be excluded from non-disclosure agreements. For example, an employee's prior knowledge is not the property of the employer, and should not be covered by a non-disclosure agreement.
To be valid, non-competition and non-disclosure agreements must be reasonably necessary for the protection of the ex-employer and not impose undue hardship on the ex-employee. Whether a particular agreement imposes undue hardship or is necessary for the employer's protection is a matter of judgment. The validity of non-competition and non-disclosure agreements is determined on a case-by-case basis according to the law of the state controlling the employment contract.
In most states, non-competition agreements which impose unreasonable time or geographical restrictions are either void or can be reformed by the courts to operate within reasonable limits. Some states have enacted statutes making any agreement by an ex-employee not to exercise his trade or profession in competition with an ex-employer ineffective.
Caveat: The employer usually has its attorney draft the non-disclosure and non-competition agreements. Accordingly, the employee should have his attorney review the proposed agreements before signing the employment contract. Even if the employer refuses to negotiate the terms of the proposed agreements and the prospective employee is required to "take it or leave it" (and perforce, "takes it"), the employee may be in a better position later in the event of a dispute.
Knowledge of the existence of a non-competition agreement or a non-disclosure agreement between an employee and his former employer may be imputed to the new employer. If the former employer is damaged by the unfair use of its proprietary information, or if the new employer may have benefitted from learning such information from an employee hired away from a competitor, the new employer may be sued for tortious interference with the non-competition and/or non-disclosure contract (as well as for unfair competition).
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