When Confidentiality Agreements Turn into Non-Competes

September 19, 2017

Topics: Employees as Competitors

Non-compete agreements which prohibit employees from working in competitive jobs for some period of time after leaving employment often also contain a confidentiality / non-disclosure provision. The confidentiality provision is intended to protect the company's confidential information without regard to whether the employee later takes a competing job.

Unlike non-compete provisions, no time frame usually needs to be put on the confidentiality protections. However, one Court found in 2017 that a confidentiality provision was drafted so as to turn it into a non-compete provision. Because it had no time limitation, it effectively prevented the person from working and earning a living indefinitely and the court thus struck it down.

The agreement in the case of Fay v. Total Quality Logistics, LLC, defined confidential information as practically anything the employee had come across during the course of his employment. It prohibited him from disclosing this information indefinitely. Although the agreement specifically granted the employee the ability to use his general skills and abilities in subsequent employment, the agreement also indicated that if the employee took a similar position with a competitive business he would necessarily disclose his former employer's confidential information. Thus, the Court found that because he was prohibited from disclosing the company's confidential information indefinitely, the agreement effectively prohibited him from taking a similar job in his industry forever. This was found to be an impermissible restriction on his ability to earn a living. Therefore, the court found the agreement to be unenforceable.

Confidentiality Provisions don't always have these types of additional comments, but if they do, they can inadvertently render the agreement unenforceable under a particular state’s laws. Here, the laws of Ohio and South Carolina were considered. Many states however invalidate non-compete agreements that prevent employees from working on earning a living.

Be sure that the non-compete and confidentiality agreements you were using with your employees comport with applicable state law. Consult with employment counsel to ensure that your agreements remain enforceable.