Mind Your Business: The Value of an Employee Non-Disclosure

Steve Michaels

April 2010

Q.  I am selling my business and have been asked by the buyer if my employees have a nondisclosure on file.  What is the purpose of this, and is it enforceable?

A.  This is a tough one.  Some employers feel that a nondisclosure is not worth the paper it is written on, while some buyers will not purchase a business without having the employees sign one.  There has been much debate about this, but here is my viewpoint.

The agreement that I recommend is called an "Employee Nondisclosure, Non-Solicit, and Confidentiality Agreement," which covers all of the bases as an employer.  It is illegal to prevent an ex-employee from finding work elsewhere in the industry or to prevent them from starting their own competing business, but it can slow them down a little by having them sign this agreement.

Basically, it contains a non-solicit clause stating that your employees cannot solicit your client list, customer by customer, nor give your list to someone else for solicitation.  You cannot prevent them from sending out a broad marketing letter, but if they single out your clients, state that they are starting a competing business, and refer to your call center in any way, this signed statement or the account being solicited could be used against them in court.

Additionally, the agreement contains a nondisclosure clause, meaning that the employees need to keep private any confidential information concerning any of your clients.  It is also includes a confidentiality agreement, meaning that all information learned at your business must remain confidential, including vendor information.

If you are selling your client list only, we like to include a clause in the "Asset Purchase Agreement" stating that the call center equipment cannot be sold within a 100-mile radius to an employee, a former employee, a current client, or a former client.  This makes the buyer feel more comfortable knowing that an ex-employee won't be able to purchase your equipment and solicit any clients for his or her own benefit - which I have seen happen.

This agreement is governed state by state so you should consult with your attorney regarding your own state's appropriate laws.  If you would like me to provide you with our boilerplate agreement, please email me.

Steve Michaels is a business broker with TAS Marketing and can be contacted at 800-369-6126 or tas@tasmarketing.com for questions.