Many companies frequently ask us to sign documents to protect their businesses or ideas, as well as their companies and potential transactions involving them—such as in the sale or purchase of companies. For this reason, today we’ll explain these concepts, the differences between them, and the most appropriate way to use them so that they serve their intended purpose. These are the confidentiality agreement, the non-disclosure agreement, and the non-compete agreement.
We identify three main purposes. They are:
- Confidentiality.
- Non-competition.
- Agreements with employees.
1. Confidentiality
Here you’ll find confidentiality agreements and non-disclosure agreements. We explain their differences and uses below.
What is the difference between a confidentiality agreement and a non-disclosure agreement?
Confidentiality and non-disclosure agreements are essentially similar. In common practice, these terms are used interchangeably to refer to contracts in which one or all of the signatories agree to keep the information shared among them confidential and not to disclose it to other individuals or entities.
In other words, through these, the parties determine:
- What confidential information may be shared and/or used for a specific purpose between the contracting parties.
- The terms of use for this service.
- The consequences of its disclosure.
While it is true that in countries such as the U.S., the term “non-disclosure agreement” is more commonly used to refer to one-way contracts in which only one of the parties shares sensitive and confidential information with the other signatories, and the term “confidentiality agreement” is used to refer to two-way agreements involving two or more parties, in which all parties share some type of confidential and secret information. The reality is that both in Spain and throughout Europe, both terms are used interchangeably to refer to the same thing.
When should you sign a confidentiality and non-disclosure agreement?
There are various reasons for signing a confidentiality agreement. The main reason is always to protect specific information that one of the parties wishes to keep confidential for the duration of their relationship and even after it ends.
Therefore, you should consider signing a confidentiality agreement when sharing, for example:
- Business information. Know-how (how we do something specific, what processes we use), trade secrets (such as a recipe or software code), the features or design of a product to be launched in the future, a trademark or logo we plan to register, financial or accounting information, etc.
- Industrial, scientific, technical, or technological information. This includes information found in inventions or designs that have not yet been patented but that we wish to protect (note that a confidentiality agreement will never offer the same protection as a patent).
- Personal data or sensitive personal information.
In fact, any information can be classified as confidential. All it takes is for one of the parties (the owner of that information) to want to keep it secret until she decides whether or not to make it public.
One of the typical situations in which confidentiality agreements are signed is at the start of M&A (mergers and acquisitions) transactions, where, due to the nature of such transactions, all kinds of proprietary company information is shared that must be protected.
With whom should I sign the confidentiality and non-disclosure agreement?
Ideally, this should apply to anyone with whom you will be exchanging sensitive information: companies, professionals, or public or private organizations with which you will be collaborating; investors; employees; franchisees or licensees; manufacturers; suppliers; or even customers; marketing and advertising agencies; testers; and QA researchers; etc.
2. Non-Competition
In this section, we’ll look at the non-compete agreement, which is slightly different. We’ll explain the differences below.
What is the difference between a confidentiality and non-disclosure agreement and a non-compete agreement?
Non-compete agreements are also intended to protect sensitive information belonging to a company or entity and prevent anyone with whom the company or entity has had a business or employment relationship from using that information to harm it and benefit its competitors.
The key difference from confidentiality agreements is that these types of agreements go a step further in protecting such information. These agreements require the parties to refrain from engaging in any professional activity that could constitute competition for either party, both during the term of the contractual relationship and for a limited period after its termination (as specified).
When and with whom should you sign a non-compete agreement?
As mentioned above, these types of agreements serve the same purpose as confidentiality agreements; therefore, the reasons for entering into them are identical, although such agreements may be entered into between companies and employees or between companies and independent professionals.
3. Agreements with Employees
Agreements entered into between the company and the employee will take on greater importance, as they are governed by Article 21 of the Workers’ Statute and are subject to stricter limitations and requirements than confidentiality agreements.
In this regard, it is important to note that, for a non-compete agreement between an employee
For a non-compete agreement between an employer and an employee to be valid, the employer must have an industrial or commercial interest that needs to be protected, and the non-compete agreement—with the resulting obligation on the employee not to compete—must be properly compensated; that is, the employee’s financial compensation must be adequate for its compensatory purpose.
Another very important aspect to consider regarding the validity of this agreement is the duration of the non-compete obligation; for technical employees, the term of the agreement may not exceed 2 years, and in all other cases, it may not exceed 6 months. It is important to comply with this limitation; otherwise, the agreements will be null and void. In other words, these types of agreements must be drafted with great care and in strict compliance with applicable law and relevant case law, as they constitute a restriction on the right to work and the free choice of profession—both of which are constitutionally recognized rights.
In conclusion
It could be said that the difference between a confidentiality agreement and a non-compete agreement lies in the way in which the confidential information to be safeguarded is protected, with non-compete agreements having stricter requirements and limitations, particularly those entered into between companies and employees.
For this reason, it’s very important that we know what we want to protect. We—Carrillo Asesores, and specifically our Legal Department—will take care of that for you. Give us a call.
