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Non-disclosure agreements aren’t just for employee contracts

On Behalf of | Oct 16, 2023 | Intellectual Property |

Business contracts generally focus on obligations between parties. For example, a vendor contract will likely outline how much one business will pay another for certain raw materials or goods. It will also establish a delivery timeline and other specific terms for the business relationship between the organizations.

Sometimes, those negotiating a business contract also want to include specific rules about what either party absolutely cannot do. Restrictive covenants can help achieve such goals by establishing expectations related to certain conduct. Companies can create certain expectations about future behavior and potentially impose specific penalties for a breach of that agreement.

For example, businesses can use non-compete agreements to keep their employees from starting a competing business and non-solicitation agreements to stop them from poaching clients. Non-disclosure agreements prevent one party from revealing the private information or trade secrets of the other. Although people often think of non-disclosure agreements as part of employment contracts, they are also potentially useful inclusions in business-to-business agreements.

How non-disclosure agreements can help

Non-public information can give one company a competitive advantage in a specific market niche. Companies therefore need to protect that information from disclosure to competing businesses or the public. Details about how a company operates and other trade secrets, such as client lists and proprietary processes, may be vulnerable. Employees are not the only parties who could disclose that information to others.

Another organization that does business with a company may have access to information that the public does not. For example, a restaurant’s main food vendor may quickly realize what components go into a company’s secret sauce based on ordering records. The possibility of one organization releasing that information to the public is a serious concern.

A non-disclosure agreement integrated into a business contract can prevent the forms of misconduct that could undermine a company’s profitability and damage its reputation. Businesses may choose to use non-disclosure agreements in contracts with other organizations in addition to utilizing them in employment contracts. Such inclusions can both deter the sharing of private business information and impose specific penalties should a violation occur. Ultimately having the right inclusions in business contracts can make a big difference for an organization trying to protect its profitability and trade secrets.