This is Part 1 in a series for non-lawyers on Restrictive Covenants in employment and business law. My plan is to start with Non-Disclosure Agreements (NDAs), and move on to Non-Competition, Non-Solicitation, and Non-Disparagement agreements and clauses. Restrictive Covenants are also used and sometimes abused in other areas, such as real estate and in business-to-business relationships, but for this post and series, we are focusing on but how they are used in the context of the relationship between employees and their employers. Let’s get started!

What is a Non-Disclosure Agreement (NDA)?

In simple terms, it’s a contract or agreement to keep something secret. NDAs can be separate, stand-alone documents, but employment agreements also sometimes include a section or sections regarding non-disclosure that serve the same purpose. You may also find non-disclosure provisions in severance agreements (when someone leaves a company).

NDAs can be one-sided (only the information of one party to the agreement is protected) or mutual (both sides information is protected). Usually between employees and employers, they are going to be one-sided, with the employer’s information being protected.

How about Confidentiality or Proprietary Information Agreements?

Those are (usually but not always) the same thing, but with a different name.

So why would you need one and what are they used for?

Just about every business has information that it wants to keep secret. The NDA will usually define what’s considered proprietary or confidential information, and the definition will vary depending on the industry the business is in and the type of job the employee holds, so it is difficult to come up with an all-inclusive list. For example, if the employee is in sales, the employer will want to be sure to include their customer relationship management (CRM) data, marketing strategies, and pricing/discount practices. Architectural firms will want to include plans, designs, and specifications. So it really depends on the business and the employee.

What happens if you violate a Non-Disclosure Agreement?

It depends on the agreement. Most but not all NDAs have a provision for “Injunctive Relief”, which means that a business or employer can go to a court and ask the court to issue an injunction prohibiting the employee from violating the terms of the NDA. There may also be a “Liquidated Damages” clause that says if the agreement is violated, the employee has to pay a specified amount of money in damages (either a set amount or an amount to be determined through a formula).

Is a court going to do that?

Maybe. An NDA has to be “Reasonable” to be enforced.

What does “Reasonable” mean? You’re not just going to say “It Depends” again, are you?

Oh. You noticed. Yeah, I am totally going to do that. If a non-disclosure agreement is written properly and the lawyer has done his or her job, they are generally enforceable, but it depends on whether the NDA:

  • Is Too Broad: Is it in effect indefinitely, or for too long of a period? Does it cover information that is not related to business interests? Does the NDA include terms that are vague and ambiguous?
  • Lacks “Consideration”: In order for an agreement to be valid, there has to be Consideration, or something of value that is exchanged between the parties. Here, the consideration by the employee is Forbearance, or “not doing something”, i.e., not disclosing confidential information. But does the employee get something from their employer for signing the NDA?
  • Covers Public or Non-Confidential Information?: Is the information already out there? Maybe it was already publicly available before the NDA was signed, or was released by someone else, or someone developed the information on their own, independently of the employee. And maybe the business didn’t bother to protect the information in the first place. Maybe that means it was never really confidential in the first place.
  • Was there unequal bargaining power, or does the NDA violate Public Policy? Was the employee in an obviously inferior bargaining position, so the agreement was unfair? Can you agree to conceal workplace sexual harassment, criminal acts, and other violations of “Public Policy”?

Let’s talk about this last one for a bit, since it has been in the news lately. McKayla Maroney recently breached an NDA in connection with a settlement with USA Gymnastics related to sexual abuse committed by former Team Doctor Larry Nassar. USA Gymnastics agreed to waive the penalties ($100,000!) for violation of the NDA provisions; but could they have gone into court and collected on the penalty, or would that have been a Public Policy violation? We will never know, but some people argue that the world would be a better place if courts stopped enforcing NDAs so that sexual abusers and harasses are held accountable, or that people restricted by NDAs should just breach them and deal with the consequences. Anyway, just know that if you have done VERY BAD things, your NDA may not be enforceable.

Well that was a bit of a downer. Got any final thoughts?

Yes. This is general information, and should not be treated as legal advice. If you have questions, or need to have an NDA reviewed, drafted, or both, you should contact a lawyer for assistance. If you’re in Maryland or DC, I can help you with that!

Thanks for writing all of this. Are you my lawyer now?

No! Unless we have signed some kind of agreement saying that you are a client of the Law Office of Edwin Wang, PLLC, I am not your lawyer. But I could be!

Photo by David Monniaux, 2003, licensed under the Creative Commons Attribution-Share Alike 1.0 Generic license