Legal Question in Business Law in Washington

Re: Employee Confidentality Agreement

A confidentiality agreement will be binding on the employee, assuming the information is protectable and the agreement is properly drafted, without regard to whether the business is a sole proprietorship or an LLC.

Depending on how the LLC is formed and acquires the existing sole proprietorship, the contract might automatically transfer to the new LLC. To be safe, and to put the employee on notice that the terms transfer, is it a good idea to note in the contract that any successor business to the sole proprietorship will have the right to have the contract assigned to it.

I don't see a reason why the contract can't include all confidential information that is subject to protection, and this would include information already shared. The employee would have the option of refusing to sign the confidentiality agreement, and then of course would not be bound by it. If the employee refused to sign, you would not be obligated to continue to employ him or her unless there is already an employment agreement for a specific term. If the protected information reaches the level of being a trade secret (has economic value because it is not generally known or acsertainable, and subject to reasonable efforts to keep it secret), the employee would still be under legal constraint not to reveal the information even without a signed agreement. However, if the agreement is properly presented, and is not unreasonably broad, the employee is likely to sign.

It is probably a good idea, if the employee is already working for you, to give him or her some compensation for signing. It need not be much; an extra day off or a small bonus is enough. For a contract to be binding, each party must receive something. A new employee receives employment in return. But if the employee already has a job, you must provide something else, so that there is an exchange.

By the way, I would also encourage you to form your LLC as soon as possible. One member LLCs are permitted in Washington, and operating agreements can be amended to accomodate additional members if added later. I'm sure you know that as a sole proprietor, you are personally responsible for any of your business's liabilities.

Please think of me if you would like an attorney's help with preparing the confidentiality agreement or with forming the LLC.