Many employers hiring in Prague and the Czech Republic rely on non-disclosure agreements (or NDAs) to protect sensitive company information.
In some countries, NDAs are facing increased scrutiny and, if you’re considering hiring in the Czech Republic, you may have several questions: Are NDAs enforceable in the Czech Republic and the European Union? How can you use NDAs to protect your company’s confidential information, trade secrets, and global employees? Read on to learn more (note: our guide is for informational purposes, and isn’t intended to provide legal advice).
What is an NDA?
A non-disclosure agreement (NDA) is a type of legal contract that prevents the parties from disclosing confidential or proprietary information to competitors.
In the Czech Republic, the employer and employee can sign an NDA that restricts the employee from sharing specific types of information, like trade secrets, that they acquired while working for the company. In general, Czech employees don’t have an obligation of confidentiality unless they work in the public sector. Because the NDA only covers what is specifically in the agreement, all information to be covered must be included.
Are NDAs enforceable in the Czech Republic?
Yes. Under the Czech Republic’s Enforcement of Industrial Property Rights and The Protection of Trade Secrets Act, NDAs are enforceable. However, there are a few important caveats:
- The NDA must be in writing.
- The terms must be very specific as to what is covered.
- The terms must be specific as to whom the agreement applies.
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Three things you need to know about NDAs in the Czech Republic
1. There is one type of NDA in the Czech Republic
While there is a single format for an NDA, there are other restrictive covenants that are used in business:
- Non-compete clauses: These are quite common and restrict a former employee from engaging in similar work for a competitor. These are valid for a fixed-term (one year or less) and require compensation to be paid to the former employee for loss of employment opportunities.
- Non-solicitation clause: This restricts a former employee from poaching staff, customers, and providers.
2. There are essential components to make NDAs enforceable
These are the things that an NDA should include to be comprehensive and enforceable:
- Clear indication of the parties involved. The NDA must include the names and roles, including who will be sharing and receiving sensitive information (i.e. the disclosing party and the receiving party), and who they will be sharing such information with.
- Definition of confidential information. This should include the general topic of information covered by the NDA, as well as the scope of information that's covered. In the Czech Republic, the information must be stated in detail as anything missed can be considered not to be covered by the agreement. It should also define how confidential information is shared; for example, is written information considered confidential but oral information is not?
- Exclusions from confidentiality. If there are any cases when parties in the NDA are allowed to disclose confidential information (for example, after it's been made public), those should be included in the contract.
- Terms of the agreement. How long does the NDA last? Employment NDAs typically last for the duration of the employment relationship, but they can last longer with limitations.
- What will happen if the NDA is breached. It's a good idea to include provisions that outline any injunctions, damages, or other contractual penalties for breaching the NDA.
3. There are three legal requirements for NDAs in the Czech Republic
For NDAs to be enforceable in the Czech Republic, they must be:
- Reasonable. The NDA cannot place an undue burden on someone not to share information.
- Specific. The NDA needs to clearly define the kind of information that's confidential and the time frame during which it cannot be disclosed.
- Not outside the public interest. Certain information can't be covered by an NDA. For example, a company can't require employees to sign an NDA to prevent them from disclosing criminal activity by the company.
When would an employee or contractor sign an NDA?
As early as possible. It's common for employees and contractors in the Czech Republic to sign NDAs during their onboarding or when they start a new work contract. An NDA may also be included as part of a new hire's offer letter or employment contract or as a separate agreement.
Frequently asked questions about NDAs in the Czech Republic
Are NDAs enforceable in the Czech Republic?
By law, an NDA is considered a legally binding contract in the Czech Republic. Czech courts have historically upheld them as long as they meet the legal requirements above.
However, it's important to note that employment and other applicable laws and regulations that affect NDAs can change, altering the ways they can be used by employers.
Are NDAs enforceable in other countries?
The enforceability of a Czech non-disclosure agreement (NDA) outside of the country depends on factors like the terms of the agreement and the national laws of the country where the NDA is being enforced. Certain regulations are standardized across the European Union (EU).
In general, an NDA that is valid and enforceable in the Czech Republic may also be enforceable in other countries, particularly in countries that recognize and enforce foreign judgments. However, many factors can affect the enforceability of an NDA in a foreign jurisdiction, such as differences in legal systems, cultural norms, and public policy considerations. Advice from a legal expert familiar with the laws in the country you want the NDA enforced is highly advisable.
What information can be covered by an NDA?
In the Czech Republic, much of the information that's considered confidential or proprietary is covered by trade secret legislation. This information can be covered by an NDA. The Czech Civil Code defines trade secrets as information that is competitively significant, identifiable, valuable, and in relevant business circles, normally unavailable outside the business.
- Trade secrets and proprietary information. This can include things like manufacturing processes, formulas, designs, and technology that are unique to a company and provide a competitive advantage.
- Financial information, including confidential financial statements, budgets, sales figures, and projections.
- Customer information, including personal data like customer contact information, purchasing history, and preferences.
- Employee information. This can include information about employees, such as their salaries, job duties, and performance evaluations.
- Intellectual property, which can include patents, trademarks, copyrights, and other types of intellectual property that are owned by a company.
Any information that's publicly known or part of the public domain cannot be covered by an NDA. NDAs also aren't allowed to prevent whistleblowers from disclosing criminal activity by a company. However, there is currently no whistleblower law in the Czech Republic although legislation is in the works.
When should you use an NDA?
Common situations to use an NDA in the Czech Republic include:
- When an invention or business idea is being presented to a potential partner, investor, or employee.
- When financial information is being shared with a potential partner or investor.
- When a new product or technology is being shown to a prospective buyer.
- When sensitive company information is shared with an employee or contractor.
- When access to proprietary or confidential information is given to employees or contractors.
- When customer information is shared with employees or contractors.
- When conducting research, you need to share sensitive information with a research firm.
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Is an NDA the same as a confidentiality agreement?
Yes. In the Czech Republic, an NDA and a confidentiality agreement are essentially the same thing, and the terms are used interchangeably. However, there may be slight differences in scope. A confidentiality agreement may cover a wider range of information.
Is an NDA the same as a non-compete agreement?
No. An NDA is different from a non-compete clause and a non-solicitation agreement. While these types of agreements are used to protect a company's interests, they serve different purposes.
In the Czech Republic, non-solicitation terms regarding the procurement of employees, customers, or suppliers are included in stand-alone contracts or within other employment contracts.
A non-compete agreement, on the other hand, is a contractual agreement between an employer and employee that restricts the employee from engaging in certain competitive activities for a specified period of time after leaving the company.
The purpose of a non-compete agreement is to prevent a former employee from taking know-how, skills, and business opportunities acquired during employment and using them to compete with your company. It does not cover the hiring of employees or acquiring customers or suppliers (see non-solicitation terms, above). A non-compete agreement can last up to a year and includes compensation (50% of the employee’s average monthly salary).
Is an NDA ethical?
Yes—NDAs are generally used to protect employers by preventing contractors and employees from sharing trade secrets and other proprietary information with competitors.
Benefits of NDAs in the Czech Republic
An NDA can help protect employers' confidential information, intellectual property rights, and proprietary assets, which can be crucial to a company's success in today's highly competitive business environment. Benefits include:
- Legal protection for confidential information, trade secrets, and other proprietary information that is disclosed to another party.
- Prevention of unauthorized disclosure of confidential information and other subject matter by requiring the recipient to keep the information confidential and not to disclose it to third parties.
- Legal recourse to seek damages and other remedies under the provisions of this agreement if a recipient of confidential information breaches the NDA.
- Protection of intellectual property, such as patents, trademarks, and copyrights.
What happens if an NDA is breached?
The regulatory penalties for breaching an NDA can vary, depending on the severity of the breach, what penalties are outlined in the NDA, and whether the breach violated any laws of the Czech Republic. But an NDA is a legally binding contract, so any breach means legal action can be taken against the violating party.
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Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.