Creation
of a business requires a certain amount of trust. That’s because even if you’re
the driving force behind your company, you still must rely on others to
assist you. The reality is you just can’t perform every role yourself.
So,
trust has to be part of the equation. But problems arise, however, when you
trust the wrong people. Unfortunately, some individuals won’t hesitate to steal
the confidential information behind your business and profit from it at your
expense.
For
this reason, it is crucial to protect your company from being raided by those
within your circle of trust, by using non-disclosure agreements (NDAs) and
restrictive covenants. In a recent post, I provided an overview of NDAs and
restrictive covenants and I explained that they are designed to ensure that the
secrets of your business do not get shared without your knowledge and consent.
Now, I want to discuss these agreements in greater detail, so that you
understand how they can be applied to give you the power to guarantee that the
confidential information of your small business is never compromised.
NDAs
Typically,
an NDA is a one-page document that you require be signed by anyone outside your
company with whom you must reveal confidential information in order to explore
how this individual can enhance your business. Once the document is signed, the
person is bound by this contract and is prohibited from ever revealing the
sensitive information that you’ve shared, even if you ultimately determine not
to enter into a formal business relationship with this individual.
If,
for whatever reason, this individual violates or even attempts to violate the
NDA, you have the right to take the individual to court to secure a restraining
order to keep the individual from disclosing the secrets of your business. The
NDA also will allow you to have this individual pay you for all of the attorney
fees that you incur to enforce the NDA. As a good business practice, always
make sure that you clearly explain this aspect of the NDA, so people are well
aware from the start that there are dire consequences for ignoring the terms of
the NDA.
Restrictive Covenants (Clauses)
In
contrast to an NDA, a restrictive covenant is used with individuals that are
already inside your company (i.e. employees) or non-employee individuals with
whom you have decided to do business (i.e. independent contractors). But the
idea behind a restrictive covenant is the same as the NDA, in that restrictive
covenants are designed to protect the unauthorized disclosure of your business
secrets without your knowledge. Restrictive covenants /clauses typically
provide three separate protections:
·
The Confidentiality
Clause is similar to the NDA. Its purpose is to make sure that confidential
information, such as sensitive financial information, customer lists and other
trade secrets of your business (sometimes referred to as “intellectual
property”), stays private. This keeps your competitors from using this sacred
information to unlawfully gain a competitive advantage over your business.
·
The
Non-Conversion Clause is a natural follow-up to the non-disclosure. It
states that once new employees or independent contractors have been given
access to your intellectual property, they won’t attempt to steal your workers,
suppliers or vendors. Basically, your staff is barred from trying to build a separate
business for themselves of for one of your competitors, based on your ingenious
ideas.
·
The
Non-Compete Clause is the final
of these three essential protective documents. It tells your staff members that
they cannot go out and compete with you in any form whatsoever. You want to
make sure, after you have revealed the secrets of your business to trusted
individuals that they won’t apply this key information, to their own company on
your territory.
All
three of the restrictive covenants can be easily embedded into an existing
employment agreement. That way, every member of your staff, whether full-time
or part-time, will fully understand that they have clear restrictions on what
they can reveal to the outside world. Equally important, these employees or
independent contractors will know that if they ignore these restrictions and
instead, try to profit on the back of your business, the consequences of their
violating the restrictive covenants will be severe. Just like with the NDA,
their violations will expose them to serious court action and personal
judgments, separate from being fired.
When
you give the restrictive covenants to an independent contractor or someone
whose services you’ve hired from outside your company, the restrictions should
be part of your Independent Contractor Service Agreement with this individual
or theses restrictions may be contained in a free-standing separate two-page
document.
Duration
Non-compete
clauses remain in effect for three to five years after the employee
relationship ends. Consequently, the covenant serves as a meaningful deterrent,
as it blocks this person from interfering with your business and stealing your
clients for a significant period of time.
Even
harsher, is the duration of the confidentiality clause. This one is typically
for life. That means that the people to whom you have revealed all of your
trade secrets, can never share this information with anyone without your
authorization, except under extreme circumstances (i.e. court order).
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