Business Law

Case Study: Non-Compete, Non-Disclosure, and Non-Solicitation Agreements (“NDA”)

The basics of a NDA

Non-compete , non-disclosure, and non-solicitation agreements, commonly grouped as a non-disclosure agreement or NDA. The NDA serves to protect a company’s intellectual property, client database, trade secrets, and more from its employees and/or contractors. These types of agreements come under close scrutiny in court settings because by their very nature they limit a person’s ability to work.

Do they work? Yes, usually. Keep in mind however, courts routinely overturn poorly drafted, or overly restrictive, NDAs. Since every state has its own requirements, it is important to seek advice from a locally licensed attorney if you are considering using one.

Background

Joe, a client, recently asked us to help him safeguard his company’s intellectual property and clientele. Joe had a successful business that was expanding and hiring experienced employees to work directly with customers. After our initial consult, Widget Maker LLC (Joe’s company) hired us to draft an employee handbook and a NDA. The employee handbook served as a guidepost of expectations for his employees. The NDA served as a way to help deter employee theft of his clientele and trade secrets.

** Note: Joe has agreed to allow us to share his experience, but we have changed facts and names to safeguard privacy.

Implementation

Once drafted, Joe and I fine-tuned the documents to meet his wants and needs. The final product provided Joe’s employees much-needed guidance regarding the culture and employee expectations at Widget Maker. With the final documents ready, we provided Joe with guidance on implementation of the new program. For the employees that did not work directly with customers, we determined the employee handbook provided sufficient protection to Widget Maker. The employees that had direct contact with the full customer list and who were trained to provide Widget Maker’s services directly to customers would be required to sign the much more robust NDA. Under Missouri law, an employer can require an at-will employee to sign a NDA at anytime.

Discovery of Employee Issue

After a few weeks, Joe implemented the new employee handbook and NDA program. Mostly, no issues arose. Many of the employees had seen these types of documents at bigger companies and appreciated Joe’s decision to formalize expectations. Unfortunately, Joe did have one employee challenge the new program. Steve (not his real name), was one of Joe’s ‘go-to’ employees. Steve knew the job, had a great deal of experience, and worked directly with customers on an on-going basis. When Joe provided Steve with a copy of the employee handbook, Steve immediately became antagonistic. Steve questioned the need for an employee handbook and stated it seemed overly burdensome because Joe had nothing to worry about with Steve.

After Steve’s questions about the employee handbook, Joe turned to Steve and delivered the NDA agreement. Almost immediately, Joe witnessed a change in Steve’s demeanor and attitude. Insightfully, rather than pressure Steve, Joe simply asked him to bring both documents home and to read through them thoroughly. Joe gave Steve a couple of days to make his decision, but let Steve know that a condition of future employment rested on Steve’s decision to sign both documents.

The following week

Ultimately, Steve decided not to sign the employee handbook or the NDA and subsequently quit. During Joe’s research into Steve’s behavior, Joe discovered the reason Steve was confrontational about these documents. Behind Joe’s back, Steve was ‘courting’ one of Joe’s past customers for a full-time position with the customer’s company. Steve is now employed elsewhere, and Joe learned a very valuable lesson in employee loyalty.

Conclusion

When I asked Joe if he was satisfied with the employee program we developed, he said yes. Ultimately, the NDA did exactly what it is intended to do. It confirmed loyalty to the employer. While this situation is not what we typically see when asked ‘do NDAs work’, it is a prime example of why we recommend NDAs to customers. Fortunately, Steve did not try to steal Joe’s entire customer database or otherwise injure the company.

If you have additional questions or would like to discuss your options regarding the protection of your company’s clients and intellectual property, contact us to see how we can help.