A non-disclosure agreement (“NDA”) is a contract that is designed to protect confidential information and trade secrets owned by one party that will be disclosed to another party. In employment law, an NDA is closely aligned with a non-compete agreement, but an NDA, technically speaking, is not the same thing as a non-compete.

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The Meaning of Confidential Information

First, “confidential information” means the information that the employee learns during his or her employment that is material to the employer’s business in any way. As we explained in The Legal Meaning of Confidential Information, this does not include information known to the employee before hiring or information that the employee can learn outside the employer from a legitimate source, such as the Internet or at a conference.

Texas courts have ruled that a departing employee can never use the former employer’s “confidential information,” whether the employee signed an NDA or not. This based on the concept of a property right. The employer invested time, effort, and money into developing this strategical information. Therefore, the employer “owns” this information, not the employee.

Second, “trade secrets” are a subcategory of confidential information. The Texas Legislature passed a statute protecting trade secrets, the Texas Uniform Trade Secrets Act. Under that statute, to constitute a “trade secret,” the following is provided:

“Trade secret” means all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

(A) the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and

(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

Trade secrets, thus, must be quantifiable by an economic value. Many times trade secrets can be patented. “Confidential Information,” on the other hand may not have an independent economic value but if misused it nevertheless can damage an employer’s business.


Non-compete Agreements Distinguished

By comparison, a non-compete agreement, also controlled by statute, can restrict a former employee’s work or employment after leaving the company in only 3 ways: The employee can be prevented from working for a competitor for a (1) reasonable amount of time, (2) within a reasonable geographical area, and (3) only if the restrictions on job activities are reasonable. While the non-compete agreement almost always is related to preventing the departing employee from using the confidential information, as explained in our Non-Compete Lawyer, still the NDA and the non-compete agreement are two different legal concepts.


Beware of Hidden Traps

One caveat: Just because the title at the top of the document states “Non-Disclosure Agreement,” there may be unrelated provisions within the document. The title does not tell you everything.

A former client asked me to review what he called a “standard NDA.” My client was promoting a new handheld device, not yet patented, that he planned to present to a huge corporation for a joint venture. The huge corporation required my client to sign its “standard NDA” before agreeing to do any business with him. About half way through the document, I discovered a provision that would have turned over all rights for my client’s new device to the huge corporation, had the device been used in any project. My client was aghast. When he pointed out this provision to the huge corporation and refused to sign its supposedly “standard NDA,” the huge corporation essentially thumbed its nose at my client. Although the joint venture did not happen, at least my client did not inadvertently turn over his rights to his ground-breaking device. The moral of that story – Read every word of any document that you are asked to sign.

If you are presented with a rather complex NDA, at Gardner Employment Law we are glad to help you determine your rights and whether to sign the agreement. Give us a call.


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