By Thomas D. DeMatteo
Vice President and General Counsel
ABC Companies

There's a significant difference between non-competition agreements and confidentiality agreements.
The former is a general prohibition against competition; i.e. an employee is prohibited from working for a competitor in any capacity. A confidentiality agreement, on the other hand, is focused on protecting proprietary or trade secret information.
Covenants not to compete are subject to a reasonableness standard. However, once an employer proves the existence of a trade secret, the protection of that sensitive information is not subject to a test of reasonableness.
Restraints against competition will only be enforced by courts if they are reasonable in time and distance, and are tailored to protect a legitimate protectable interest. Protectable interests include: customer relationships, especially long term ones; customer identities, even prospective ones; trade secrets and confidential information; patents, trademarks and trade names; goodwill, and special, unique or extraordinary skills.
Several factors affect the length of time that is deemed reasonable: the nature of the industry; the frequency of customer contact; the availability of public information about the customer, and the amount of time reasonable to recoup an employer's investment in territory development and training.
Courts seldom criticize time restraints within six months to a year. One- to three-year agreements are generally common for senior executives and, in certain cases, like mergers and acquisitions, five-year agreements have been upheld.
Restrictive covenants, which prohibit an employee from competing against an employer wherever it conducts business, are generally considered too broad unless the employee truly had a position that was national in scope. Courts usually focus on the territory of the covered employee.
Courts have developed what is called the "blue pencil" doctrine. Courts will uphold the agreement but narrow the time period or geographic limitation by penciling in their own standards of reasonableness.
Lastly, employers tend to forget one key item, which can completely render an otherwise reasonable agreement unenforceable. The employer must give the employee consideration (something of value) for obtaining the restrictive covenant. If the agreement is signed before employment begins, then the job itself is adequate consideration. If employment has already begun, then something more must be given such as a promotion, bonus, raise, additional vacation time and the like.
Confidentiality agreements are analyzed by the courts differently.
Agreements not to disclose confidential or proprietary information or trade secrets are not limited by time or geography. The information is protected so long as it remains confidential and proprietary. Once an employer proves the existence of a trade secret the protection of the sensitive information is not subject to a test of reasonableness.
To qualify as a trade secret, the information must be an employer's particular secret rather than a general secret of the trade, and it must be of particular importance to the conduct of the employer's business.
Factors that determine whether or not something constitutes a trade secret include the:
* Extent to which the information is known outside the employer's business;
* Extent to which it is known by others involved in the employer's business;
* Measures taken by the employer to guard the secrecy of the information;
* Value of the information to the employer and the employer's competitors;
* Amount of effort or money expended by the employer in developing the information;
* Ease or difficulty with which the information could be acquired or duplicated by others.
Customer lists, certain business and marketing information, pricing information, marketing strategies and terms of specific customer accounts may qualify as "trade secrets" depending upon the application of the factors mentioned above.
Understanding these key principles will help you work with your lawyer to draft enforceable agreements to protect your business' goodwill and competitive advantage.

Dilworth Paxson, LLP, 12th Annual Employment Law Conference, November 2003.

Thomas D. DeMatteo also is an adjunct professor of law at Hamline University School of Law in St. Paul, Minn.