Non-competition, non-disclosure and confidentiality agreements are legal documents that attempt to restrict employees from engaging in several types of activities, such as: performing the same job responsibilities for a competitor, launching a new business that competes with the employee’s current employer, luring clients away from the employee’s current employer, and disclosing proprietary or trade secrets.
Goals of non-competition, non-disclosure and confidentiality agreements
Noncompetes, NDA’s and confidentiality agreements protect an organization in several ways:
- Protect future revenues by preventing former employees from soliciting clients and current employees
- Protect investments in human capital by retaining well-qualified and trained staff
- Protect trade secrets and proprietary information
Penalties for disregarding non-competition, non-disclosure and confidentiality agreements
An injunction is the most common relief awarded for violations of non-competition, non-disclosure and confidentiality agreements. However, non-competition, non-disclosure and confidentiality agreements frequently contain provisions that require the losing party to pay the prevailing party’s attorneys’ fees. Additionally, a former employee may be held liable for the damages caused by his or her breech of a non-competition agreement.
What makes a non-competition agreement enforceable in Tennessee?
- The employer has to have a legitimate protectable interest. Tennessee law recognizes three justifications for “protectable interest”:
- To retain existing customers
- To protect trade or business secrets and confidential information
- To protect the investment the employer has made in training the employee
- The non-competition agreement has to be reasonable. Tennessee courts have developed a non-exclusive list of factors in this determination, including:
- What the employee received for agreeing not to compete when his or her employment ended. Under Tennessee law, the promise of continued employment is generally found to be sufficient consideration for a non-compete.
- Threat or danger to the employer in the absence of an agreement. In other words, is it likely that the employer will lose existing customers, trade secrets or a substantial investment in training the employee if the non-compete is not enforceable?
- Economic hardship imposed on employee by the non-competition agreement. Will the employee be able to make a living if the non-compete is enforced?
- Whether public interest is served by allowing the individual to participate in his or her trade freely and without monopolization. For example, physicians are not subject to non-competition agreements in Tennessee.
- The agreement has to be sufficiently tailored to balance the employer’s interests with the employee’s right to work.
A court will consider on a case-by-case basis the time, geography, and scope of the agreement. Oftentimes, Tennessee courts will rewrite a non-competition agreement to make it reasonable.
When hiring a new employee, it’s important to ask whether the person is subject to any non-competition agreements. If the answer is yes, consult a qualified lawyer to determine specifically what the agreement prohibits and how it compares to the responsibilities you had in mind for the employee. Non-disclosure and confidentiality agreements are also important if the person you’re hiring is going to be trusted with proprietary information or may be in position to take on clients. A lawyer can help you draft an agreement that takes into account your situation and your particular trade or industry.