All businesses have sensitive business information that, if misused, can be damaging. Customer pricing, supplier lists, supplier pricing, profit and loss information, internal procedures and compensation information are just a few examples. And most businesses have employees, independent contractors, or both, who have access to some or all of this sensitive information. The people with access to this information can cause problems for your business if they choose to misuse it.
Non-compete or Non-disclosure?
One way to protect your business’ sensitive information is to require your employees and independent contractors to agree in writing to keep that information confidential and to use it only for the benefit of your business. I’m talking about requiring them to sign a confidentiality agreement, also known as a non-disclosure agreement or an NDA.
A confidentiality agreement is different from an agreement with a non-compete provision, which can protect your business by preventing an employee from working for a direct competitor for a specified period of time after he or she leaves your company. While a non-compete clause can be effective, it can be very tricky to implement and enforce. On the other hand, a confidentiality agreement is easy to put in place and provides protection for your business’ sensitive information that is in the hands of your employees and contractors.
What can you do when someone violates a confidentiality agreement?
A confidentiality agreement only works when it is honored by the person who signed it. Even the most cynical of us believes that some percentage of these employees or subcontractors will honor them, right? But what of those who choose not to honor them?
The answer is that your business will have a contract claim against the person misusing your information. Admittedly, that is not nearly as good as when a confidentiality agreement is honored. If you were to pursue a court case based on your claim, it will be expensive and its outcome will be uncertain. You will have to weigh the cost of going to court to obtain an injunction against the damage caused by misuse of your information. Even so, a well-drafted confidentiality agreement can reduce the cost of pursuing an injunction and can provide that, if your business gets an injunction, the bad actor will have to pay your legal fees.
What’s the bottom line?
The bottom line is that confidentiality agreements provide benefits to businesses looking to protect their sensitive information from misuse by employees and independent contractors. And the costs of preparation and implementation of these agreements are not substantial and are far outweighed by the benefits.
About the author
Mark R. Sullivan is an attorney with The Lynch Law Group in Cranberry Township and Pittsburgh, Pennsylvania. Born and raised in the Pittsburgh area, Mark has practiced law in Pittsburgh as counsel to businesses of all sizes for over 30 years. He provides general corporate legal services primarily to owner-managed businesses, including family-owned businesses; his practice includes securities law, acquisitions, various forms of debt and equity financing, including investment crowdfunding and private placements; real estate transactions, including purchases, sales and leasing matters; employment agreements; software and technology licensing; commercial collection services; and general contract review, drafting, and negotiation. Mark can be contact by email at firstname.lastname@example.org or by phone at (724) 776-8000.