The two clauses most often confused in commercial relationships are the confidentiality obligation and the non-compete obligation. Yet they serve different purposes and produce different legal consequences.
- Purpose: A non-disclosure agreement (NDA) aims to prevent shared trade secrets, know-how or financial information from being disclosed to third parties. A non-compete clause, on the other hand, prevents a party from engaging in a competing activity, or working with a competing business, for a defined period and in a defined territory.
- Term: A confidentiality obligation can continue for many years after the contract ends; a non-compete obligation, by contrast, must be limited to a reasonable period, or it risks being held invalid.
- Scope: An NDA is built around "not sharing information"; a non-compete clause is built around "not engaging in an activity" — it restricts not the use of information a person knows, but their working directly in that field.
- Validity limits: Non-compete clauses can be held invalid, or have their scope narrowed, where they are not reasonable in terms of scope, duration and geographic area — that is, where they disproportionately restrict a party's freedom to work. NDAs are not generally subject to this kind of "reasonableness" review.
- Using both together: The two clauses can be used together, but each should be drafted separately, in line with its own logic. Clauses merged under a single heading, blending the two concepts, tend to create problems in practice.
Which clause to include in your contract, and in what scope, depends on the nature of the interest you are seeking to protect.
This note is for general information purposes only and does not constitute legal advice.
For an assessment of your specific situation, please get in touch.