As a small business owner, maintaining confidentiality and protecting your business interests can be a fine balance. Non-disclosure agreements (NDAs) are widely used to safeguard sensitive information. However, depending upon your industry or client relationships, you might also need a non-compete clause built your NDA. This article provides clear, actionable advice on how to add a non-compete clause to an NDA and what to keep in mind as you tailor your legal agreements.

Understanding the Basics

Non-compete and non-disclosure clauses serve two distinct yet sometimes overlapping purposes. While an NDA protects confidential information, a non-compete clause is designed to restrict another party from engaging in certain activities that might directly compete with your business. When blending the two, the goal is to achieve both confidentiality and a degree of operational protection.

Key Differences

• Non-Disclosure Agreement (NDA): Prevents third parties from sharing proprietary information.
• Non-Compete Clause: Restricts parties from engaging with a competitor or starting a similar venture.

Combining both clauses can be complex, as each state and jurisdiction might have specific requirements regarding enforceability. Consulting with a legal professional is crucial, but before that, you can prepare your template with clear guidelines.

Steps to Add a Non-Compete Clause to Your NDA

Below are actionable steps to consider when incorporating a non-compete clause into your NDA:

1. Define the Scope Clearly

It's important to clearly demarcate the boundaries of what is considered competitive. Consider the following:

1. Industry Specificity: Define the specific industry areas or markets the clause applies to.
2. Geographic Boundaries: Set clear geographical limits where the non-compete clause is enforceable, whether it’s a specific region, state, or country.
3. Duration: Specify how long the non-compete clause remains active.

For example, you might state: "The Recipient agrees not to engage in any business that directly competes with the Discloser for a period of 12 months within the state of California."

2. Keep Language Reasonable and Balanced

A well-crafted non-compete clause should be fair and not overly restrictive. Courts are more likely to enforce clauses that have reasonable limitations:

• Ensure that the clause protects legitimate business interests without unnecessarily hindering the recipient’s future employment opportunities.
• Use neutral and precise language that avoids ambiguity.

"Balancing protection with fairness is key—the clause should safeguard your business interests while still allowing reasonable freedom for the other party."

3. Draft the Clause with Legal Expertise

Even though templates and guides can serve as a starting point, each business has unique needs. It’s to have a lawyer review your NDA and non-compete clause to ensure compliance with local laws and to protect your business. Here’s how you can prepare:

1. Create a draft using a trusted legal template.
2. Highlight the specific areas where a non-compete clause is necessary.
3. Review the language with a legal advisor.

A lawyer can help you adjust the clause to suit both the enforceability requirements of your jurisdiction and the specifics of your business model.

Examples of Effective Clauses

Let’s consider a real-world example. Imagine you run a boutique marketing analytics firm:

Example Clause: "For a duration of 18 months following the termination of this Agreement, the Recipient agrees not to directly or indirectly engage in any business activities that compete with the Discloser's marketing analytics services within the Northeastern region of the United States."

This clause achieves several goals:

• Clearly defines the duration.
• Specifies a geographic region.
• Targets direct competition in a very specific business service sector.

Such specificity helps to demonstrate that the clause is reasonable and tailored to the unique business context.

Best Practices for Small Business Owners

When integrating non-compete clauses into NDAs, consider these best practices to ensure clarity and enforceability:

• Be Specific: A vague clause is harder to enforce. Detail exactly what is meant by "competitive activity."
• Consider Exceptions: Include carve-outs for passive investments or engagements that do not impact your core business.
• Regularly Review Agreements: Laws and business models change. Regularly updating your legal templates can help maintain enforceability.
• Educate Your Team: Ensure that key personnel understand the implications of the non-compete clause, which can help prevent future misunderstandings.

Conclusion

Adding a non-compete clause to an NDA is a nuanced process that requires careful drafting, clear language, and a balance between protecting your interests and allowing fair freedom for the other party. By defining precise boundaries, maintaining reasonable limitations, and seeking legal advice, you can craft a robust agreement that meets your business needs.

Taking the time to properly integrate a non-compete clause not only safeguards your confidential information but also helps maintain a competitive edge in your industry. Whether you are starting from scratch or updating an existing agreement, these actionable steps should provide clarity and confidence in your approach.