From Trust to Restriction: What You Need to Know About NDAs and Non-competes

Ever worry about an employee moving on to a competitor or sharing sensitive information? Enter NDAs and non-compete agreements.
It’s important for you to know about NDAs and non-compete agreements to ensure your organization complies with legislation and to help protect your company’s interests. Having this knowledge means you can clearly communicate the right information to your workforce.
Research suggests that 95% of employees with a non-compete contract have a non-disclosure agreement (NDA).

Being ill-informed on the topic can put your organization at risk of legal disputes. This could damage your employer reputation and result in financial penalties. In this guide, we’ve pulled together the key facts about the topic so that your organization can put it in place correctly. Ready? Let’s start with the basics.

What is an NDA?

An NDA, or non-disclosure agreement, is a contract that protects sensitive information. It creates a confidentiality obligation, preventing one or both parties from sharing the information with others.

NDAs are normally signed at the beginning of business relationships to protect sensitive information that could harm the business, a deal, or the people involved.

For example, a new executive with access to trade secrets may need to sign an NDA to prevent them from sharing that information with rivals.

What is a non-compete agreement?

A non-compete contract clause prevents employees (and sometimes contractors) from competing with their former employer after they leave the company.

The prohibited actions may include:

• Working multiple jobs
• Taking another contract
• Starting a business in the same field
• Working within a certain distance of a particular location
• Working with certain competitors.

It’s also worth noting that a seller of a business may sign this type of agreement with the purchaser.

Non-compete agreements are often designed to help businesses maintain their market share. They prevent employees and contractors from sharing trade secrets or using company relationships and skills to compete unfairly.

NDA vs non-compete

They’re both a confidentiality agreement, but how do they differ? To help you understand how they’re distinct, see the table below:

What is an NDA used for?

An NDA agreement may be used in a variety of situations where protecting sensitive information is crucial:

• Proprietary product or technology sales or licensing
• Privileged access to trade secrets and confidential information
• Information shared during presentations or negotiations with potential partners or investors
• Confidential vendor contracts
• Confidential new client data
• Confidential mergers and acquisitions data

NDAs can protect a variety of sensitive information and data, including:

• Information, contact details, and conversations with major customers
• Pricing models, marketing campaigns, and other promotional activities
• Operational data
• Financial information that doesn’t require public disclosure, including the financial details of current or former customers
• Company-owned intellectual properties

As a binding legal framework, NDA enforceability serves several purposes for the organizations that use it.

The different types of NDAs employers use

Selecting the right NDA is crucial for protecting your company's proprietary information. Tailor the agreement to the nature of your business, as well as the expected level of information sharing and the number of parties involved.

Bilateral (mutual) NDA

Mutual NDAs ensure that both parties agree to protect each other's confidential information. They’re commonly used during partnership, merger, or acquisition discussions. In other words, when sensitive information needs sharing to assess the potential of a strategic alliance.

Unilateral (non-mutual) NDA

Only one party is bound to signing a contract in one-way NDAs. This is common with new employees who agree not to disclose sensitive company information. With a one-way NDA, the company itself doesn't sign the agreement.

Multilateral (multi-party) NDA

Multi-party NDA contracts involve three or more parties who all agree to protect shared sensitive information. This simplifies the process by eliminating multiple two-party agreements.

Disclosure NDA

Disclosure NDAs specify what information can be shared and with whom. This protects the disclosing party from legal action. They’re prevalent in healthcare, where doctors share patient information with insurers.

Tips for creating NDAs

If you’re creating an NDA agreement for the first time, there are a few best practice behaviors to keep in mind:

• Use specific language and definitions instead of vague or broad terms
• Avoid disclosing sensitive information before the contract is signed
• Create a standard NDA template and use electronic signature and storage to ease the process
• Have the contract reviewed by an attorney
• Keep the NDA focused on the information that should be kept private
• Avoid non-solicitation and non-compete clauses to ensure the contract is fair
• Keep the NDA to no more than one page to avoid overly complex language
• If you use an NDA template, take care to ensure each NDA is unique to your situation
• Actively manage all NDA contracts, keeping up with signatures, time frames, etc.

Following these tips will help you create more effective confidentiality agreements that increase your chances of success with enforcement.

Tips for creating non-compete agreements

If you’re creating a non-compete clause, the following steps can help you craft a clear agreement:

• Be clear on the restricted roles, industries, and competitors
• Limit the restriction period (between six and 12 months, for example) to be fair
• Restrict only areas where the company operates or competes
• Focus on protecting trade secrets, clients, or proprietary knowledge
• Avoid vague terms that can invalidate the agreement
• Check local jurisdictional rules, as non-compete laws can vary in every state
• Offer something of value (for example, a job offer or bonus) in exchange for signing
• Update agreements to reflect role changes or new regulations
• Ensure the agreement is enforceable and compliant with current labor laws

NDAs and non-compete agreements FAQs

Got more questions about these confidentiality agreements? We answer the most asked ones below:

What does NDA stand for?

NDA stands for “non-disclosure agreement.” As the name suggests, these contracts focus on information privacy rather than the terms of a sale or the service the organization provides. An NDA ensures the protection of sensitive information.

What is a non-compete clause?

Non-compete clauses, as opposed to non-compete agreements, usually appear as one section within a larger business sale or employment contract instead of being signed as a separate legal document. But non-compete clauses do have the same terms and serve the same purpose as non-compete agreements.

Are non-competes enforceable?

Non-competes are generally still enforceable under state law. However, in August 2024, the Federal Trade Commission (FTC) announced a rule banning non-compete clauses nationwide on the basis that they hurt the US economy and stifle innovation. That rule isn’t currently in effect and not enforceable. As of 2025, the FTC has dropped its pursuit of a ban on non-compete agreements.

How a non-compete ban could impact existing agreements

If enforced, the FTC’s proposed non-compete ban would apply to current and former employees and render all non-compete contracts void. Additionally, employers would be required to notify all current and former employees that their non-compete contracts have been rescinded, provided they have up-to-date contact information for those former employees.