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What you need to know about Non Compete Agreements

April 28, 2014

 Let’s assume you have decided it’s time for a new direction in your career and you just received a great offer letter. Congratulations!  But don’t sign just yet. If you live in states other than California, or a handful of others, make sure to read the fine print with the offer – especially the Non Compete Agreement (NDA). They are legal documents that companies rely on to protect confidential information, and intellectual property. It makes sense that companies should have some sort of agreement with employees to control sharing of sensitive information. However, most of them extend beyond the time that people are actually employed by the company (often for an additional year), and reading the fine print on restrictions imposed on you, the employee, is worth reading and understanding.

 

Many people do not take the time to carefully read the fine print on their NDA, particularly when they are excited about embarking on a new job with a new company. They often can’t wait to get started especially if the courtship has been positive or even ego-boosting. But you should keep in mind that NDA’s are legal documents meant to protect the company, not the employee, and it is important to understand the restrictions that may be asked of you. It is often possible to negotiate some of those restrictions to specifically define the scope and terms of those restrictions. But most importantly, that needs to done up-front, not down the road if/when you are actually thinking about leaving the company.

 

Interestingly, NDA’s have come under scrutiny, and they may become a thing of the past. The Harvard Business Review published an article suggesting that NDA’s stifle employee performance. The piece references a study where engineers without NDA’s preformed better than those who had them. Is there really a direct relationship? Their research found that engineers with NDAs were less motivated which led  to more mistakes and lower productivity.

 

California, where NDA’s are not enforceable, are a positive test case showing that NDA’s are not necessary for companies to be innovative and successful. Many big tech firms and small entrepreneurial companies in CA have clearly found ways to drive innovation and profits while not compromising intellectual property and corporate success.

 

This month the Governor of Massachusetts, Duval Patrick has proposed legislation to banish NDAs in his state. This is good news for employees, however business leaders oppose the measure. As a compromise Patrick has proposed the adoption of the Uniform Trade Secrets Act. In principle it restricts employees from taking company confidential information and intellectual property if/when they leave the company, but it also alleviates some of the limitations on being able to work for other, often competitive, companies. The Uniform Trade Secrets Act is already successfully enacted in 46 other states, so hopefully this will bring Massachusetts in line with a new standard.

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