A non-compete agreement is an agreement between two parties in which one party agrees not to compete with the other party after the termination of employment. The Non-Disclosure Agreement(NDA) protects that data disclosed by one company to another remains secret and is not disclosed to extraneous third parties.
The purpose of an NDA is to protect the company from the employee/collaborator’s use of confidential information (know-how) acquired during the employment relationship. For example, if a VAT-registered employee/collaborator is hired as an engineer to develop a new product, the company may require the employee to sign an NDA committing him or her not to work for a competitor for a specified period of time after termination of employment.
An NDA can be unilateral or bilateral. A unilateral NDA is an agreement in which only the employer agrees not to compete with the employee. A bilateral NDA is an agreement in which both parties agree not to compete with each other.
An NDA can only be valid if it is reasonable. An NDA is reasonable if the duration of the non-compete is limited, the geographic area in which the non-compete is valid is limited, and, only in the case of an employee-employer relationship and not in the case of collaboration with VAT-registered professionals, the compensation the employee receives in exchange for the non-compete is fair.
If an NDA is violated, the company can ask the court to order the employee/collaborator to cease the violation and pay damages incurred.
How a non-compete agreement works
A covenant not to compete, as mentioned above, is a valid contract only if it is reasonable. An NDA is reasonable if the duration of the non-compete is limited in time and space and, only in the case of employees, the compensation the employee receives in exchange for the non-compete is fair.
The duration of the non-compete must be limited to the time necessary to protect the legitimate interests of the entrepreneur. For example, if the work of a VAT-registered professional is contracted as a provider of engineering services in order for him to develop a new product, the non-compete may be valid for a period of 3-5 years.
The geographical area in which the non-compete applies must be limited to the area in which the enterprise operates. For example, if the company operates only in Italy, the non-compete cannot apply worldwide.
In the case of an employment relationship, fixed-term or open-ended, The compensation the employee receives in exchange for the non-compete must be fair. Compensation must be proportionate to the damages the employer would suffer if the non-compete were violated.
What to do if a non-compete agreement is violated
If an NDA or covenant not to compete is violated, the company can ask the competent court to order the collaborator or employee to cease the violation and compensate him or her for the damages suffered.
The employer or company may request the court to order the employee or contractor to cease violating the NDA and/or not to work for a competitor for a specified period of time. The entrepreneur can also ask the court to order the collaborator to compensate him or her for damages incurred due to the violation of the NDA and the covenant not to compete.
Damages that the entrepreneur can claim from the employee may include:
- The profits the collaborator would have made had he or she complied with the non-compete agreement and the NDA;
- The costs the company incurred in developing the know-how protected by the NDA;
- The damage to the entrepreneur’s reputation caused by the violation of the NDA.
Finally, as a quick reminder, the company has two other tools at its disposal to protect itself from competitors/collaborators:
Non-Solicitation Clauses
Non-solicitation clauses prevent employees from contacting a company’s customers or other of its employees for a certain period of time after the end of their employment. These clauses can be extremely effective in protecting the client portfolio from unfaithful employees.
Intellectual Property Rights Assignment Clauses.
These clauses, often included in collaboration or employment contracts, ensure that any creative work produced by employees during their employment belongs to the company. These clauses can protect know-how and other intellectual creations.
If a non-compete agreement or NDA is violated, it is important to consult a lawyer to consider legal action.
If you need an NDA, a confidentiality agreement, a non-competition agreement, a non-solicitation agreement, or a contract with intellectual property rights assignment clauses, just write to me here for my direct help: https://orestemariapetrillo.it/servizi/#contatti