Employee Confidentiality vs. Non-competition: TOP 5 Tips
New businesses may struggle to keep their innovation a secret. In addition, key employees leaving the company may cause a lot of harm by working with a competitor. Even worse, a former employee may start competing business and undercut former employer with cheaper price and/or better service. How to tackle these issues effectively?
It is important to note that confidentiality (otherwise known as NDA) agreements and non-compete agreements address different issues. While NDAs prevent employees from spilling out the company’s client attraction strategy at the bar, these agreements do not prevent employees from seeking additional employment (even with competitor). On the other hand, non-compete agreements prohibit seeking additional employment but do not forbid disclosure of confidential information. One caveat: the employer shall pay a compensation of 40% of the employee’s average monthly salary for each month the employee is prohibited from competing, while confidentiality obligation requires no additional compensation. A lot of companies opt to conclude NDAs with their employees, however conclusion of both agreements could be a winning strategy in some cases.
Create a list
NDA is worthless if the employees do not know what information is considered confidential. Unfortunately, a provision indicating that all information is confidential will not stand a chance in court. For this reason, confidential information, commercial secrets, and other types of sensitive information should be identified by drawing up a list. This way, in case of a dispute, the employee will have a hard time proving that he did not know a particular type of information was confidential.
Let the employees know
Did you know that 90% of claims fall apart because there was a signature missing? The golden rule when introducing any policies or agreements to the employees is to actually take the time to explain their significance and get employee’s signature (or at least email confirmation). This way it will be clear that the employees have read the documents and understood their content.
It is a common misconception that once agreements are signed and policies are introduced, the job is done. This is far from the truth. Do not let your NDAs and non-compete agreements gather dust in a drawer, remind the employees of their content once in a while. The company’s culture plays a huge part in employees’ behaviour and if they see that little significance is given these agreements, they will be more likely to breach them.
Sometimes clients ask me “But how do I know if there was a breach of an NDA or a non-compete agreement?” A breach can be detected only by being alert to the behaviour of employees while they are working in the company and by monitoring their professional lives once they leave the company. It is important not to cross boundaries of personal data protection, however, taking a look at their public social media posts can be a good indicator whether they are working with a competitor.
The article is written by Jovita Valatkaitė, Senior Associate at COBALT.