4 critical points to consider in a non-disclosure agreement [before you sign it]

4 critical items to consider in a non-disclosure agreement [before you sign it].

1.      Is the definition of “confidential information” specific enough to be workable?  For the non-disclosure agreement to have any value, both sides must understand what is being protected.  I routinely see non-disclosure agreements that have wonderfully frightening all-inclusive definitions of “Confidential Information.”  For example, consider this definition:

 The parties acknowledge and agree that all practices, procedures, business models, documents, photographs, marketing and sales plans, financial information, costs, pricing information, customer information, customer lists, and all methods, concepts, know-how or ideas in or reasonably related to the business of [redacted]

Wow, that covers just about everything ever created by the business or which the business even thought about creating.  This type of definition has the potential to allow the disclosing party to use the non-disclosure agreement as a battering ram for years into the future.  The definition should be limited to the information and area in which the parties are collaborating.  Protect what is actually private, which leads to the next point.

2.       Is the material being protected actually worthy of protection?  Although technically parties to a non-disclosure agreement can designate anything they choose as “confidential”, it makes practical sense to only protect the items that are actually private and proprietary.  It is material that a business protects through reasonable means and that actually adds value to the business.  Protecting material that is quasi-public or ancillary to your primary business interest leads to precisely the type of murky non-disclosure agreements discussed above.

3.      Which state’s law is the agreement going to be controlled by?  While there may be some common legal principles shared by most states, if you think your agreement is covered by Oklahoma law and it is actually covered by New York, you are probably in for some surprises.  A given state’s law on contracts is the product of value judgments made by the legislative and executive branches of state government.  The values Oklahoma holds dear may be quite distinct from those cherished in New York.

4.      Who is allowed to see the confidential information?  It is standard for executives and employees who are directly involved in the project to be included.  However, if you have consultants who need access to the material, make they are included.  Also, don’t forget about your attorney:  he or she may be involved in drafting future agreements between the parties to the non-disclosure agreement and will need to be included.

Get a handle on these points before you sign the non-disclosure agreement because mistakes in these areas have painfully long lives.

 

Posted by Shawn Roberts

On this blog, I write about and try to answer practical Oklahoma legal questions. My focus and most experience is in estate planning and business issues including Oklahoma non-compete law. I make a living as an attorney in the law firm I founded, Cazes Roberts, PLLC in Oklahoma City. I live in Edmond with wife Amy and my two children, Sam (17) and David (9). We live precisely in the path of where the "wind comes sweeping down the plains."

2 comments

Hi, I was recently offered a job and upon my first day was told I would need to sign an employee agreement which included a non-compete and have it notarized. I live in Oklahoma and the job is in Oklahoma, but at the end of the agreement it says that the agreement shall be governed by the laws of the State of New York. The company is based out of New York. To me the terms of the agreement seem extreme especially when there really is no need for an agreement in the first place. The position is a simple jewelry sales associate position. They claim their methods are special and unique, but I saw nothing in my first day that was remotely special or unique. Sells are sells in my book and I didn’t see anything I didn’t already know from over 10 years previous sales experience. If anything I could have given some of their people a few pointers. With their agreement they want to bar me from working for two years from the time I leave their company at any jewelry store within a 25 miles radius of any of their or their affiliate stores worldwide. Is such an agreement binding? And would only New York law be looked at if I were to attempt to contest it?

shawnjroberts

Stacie,

Thank you for the comment, I appreciate you taking time to read my post. While I will have to review the actual agreement and talk with you about it before providing specific advice, I can offer a few thoughts:

I am assuming the agreement is fairly standard for the company and they use it with most employees regardless of the postion or geographic location.

I do not know New York law, but it is could be binding. Under Oklahoma law, the non-compete section is unenforceable.

It is a bit odd to New York law control an employment agreement between an Oklahoma resident, the Oklahoma location of the company for work in Oklahoma. Businesses take this approach so they can standardize all of their contracts under one state’s law.

Have you signed the agreement?

Shawn