If You Sign a Non-Compete or Non-Disclosure Agreement, Here's What You're Giving Up

If you're asked to sign a non-compete or non-disclosure agreement during the hiring process, you need to understand what it means. Let's get into it.

Kathryn Underwood - Author

May 10 2023, Published 1:27 p.m. ET

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Since the period of large corporate layoffs seems to be continuing, that means tens of thousands of people are hitting the job market. Job seekers need to brush up on interviewing skills and polish their resumes, but they also should be aware of contractual clauses they might be asked to sign. What is a non-compete or non-disclosure agreement?

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As you're scrolling through job openings on LinkedIn and trying all the best job-hunting tactics, it's important to remember your rights and avoid giving up too much if and when you accept a new position. Some companies require new hires to sign a non-compete or non-disclosure agreement, which restricts the employee's options in the event they stop working for that company.

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What is a non-compete or non-disclosure agreement?

First, it's essential to understand that a non-compete and a non-disclosure agreement aren't the same thing. While both are contractual clauses that a person agrees to follow even after employment at a specific company has ended, they restrict different types of actions.

As the U.S. Treasury Department explains, non-compete agreements are "contracts between workers and firms that delay employees' ability to work for competing firms." Monster.com explains further that a non-compete means you agree not to compete with a former employer for a "reasonable length of time and within reasonable geographic limits."

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A non-disclosure agreement (NDA), on the other hand, is an agreement that an employee won't disclose trade secrets. Any information that the company deems proprietary or confidential can fall under a NDA. Theoretically, a person should still be able to work for a competitor of a former employer, but they can't use this type of information at the new company if under a NDA.

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What is the purpose of a non-compete agreement?

As the Treasury Department states, companies use non-competes for numerous reasons. They can help protect trade secrets, reduce turnover among workers, and improve employer leverage in other negotiations with employees. Unfortunately, for employees a non-compete agreement may mean accepting lower pay or even being forced to exit their profession.

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CNBC reports that the Federal Trade Commission is considering a ban on non-compete agreements that wouldn't only prevent new non-competes from being issued, but also void all existing non-competes. Roughly 18 percent of U.S. workers are bound by non-competes. The document restrict their bargaining power with employers.

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According to FTC estimates, a ban on non-competes could increase wages by almost $300 billion per year. It would also expand career opportunities for about 30 million Americans, since non-competes restrict people from seeking better employment in the same industry.

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In 2019, the Justice Department alleged that Edward Snowden's book violated non-disclosure agreements.

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What is the purpose of a non-disclosure agreement?

Non-disclosure agreements, or NDAs, offer different benefits to employers. Employers who sign NDAs upon taking an offer of employment agree not to share information that the company owns, such as specific technologies, financial information, sketches, products, and business plans.

Can I work for a competitor if I signed a non-disclosure agreement?

It's important to know whether you're signing a non-disclosure or a non-compete agreement. Signing a NDA means you can't be prohibited from working for a competitor (after leaving a previous job). However, you won't be able to use technology and information deemed "proprietary" or "confidential" while at a new company for however long the NDA is in effect.

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How do I get around a non-compete agreement?

A non-compete agreement can be devastating to an employee if they leave their position. They may be prohibited from working in the same industry for a period of time, often for a year or longer. After training for a specific career, not many options are available if you're bound by a non-compete agreement.

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G & G Law, LLC notes that for a non-compete agreement to be enforceable, it has to meet criteria deeming it "reasonable," which means the agreement must:

  • protect a "legitimate business interest" of the employer
  • not place the employee under "undue hardship"
  • not violate public policy

You may try to get out of or void a non-compete by proving it doesn't meet those criteria. You might have to prove this in court, if the employer takes things that far.

It's also wise to take time at the time of hiring to negotiate the terms such as a non-compete or NDA. Talk with the employer about any misgivings you have about a potential non-compete agreement and why you'd prefer not to sign it.

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