NDAs and Employment Law

A nondisclosure agreement (NDA) is a legal contract that restricts what an employee can share about their work. This protects trade secrets, confidential business information, and other sensitive information. An NDA can continue to limit what employees can say even after they leave a job.

This page gives a broad overview NDAs. Because employment laws vary by state, consult an employment attorney in a city near you to give you the best legal advice about your situation.

What Is a Nondisclosure Agreement?

A nondisclosure agreement is a legal contract that establishes a confidential relationship between employers and employees not to share business information with third parties, such as competing companies. An NDA is also called a confidentiality agreement or confidential disclosure agreement (CDA).

Types of sensitive information protected by the use of NDAs include the following:

• Trade secrets
• Intellectual property
• Research and development
• Proprietary information
• Business processes
• Financial information
• Customer lists
• Marketing strategies
• Merger details between companies

When Do Employers Use a Nondisclosure Agreement?

Businesses use NDAs in the following business situations:

• A company wants to protect its business interests before negotiating with another party.
• The employer wants to ensure an employee or independent contractor will maintain confidentiality.
• A company wants to protect itself before negotiating with a potential investor.

What Are the Types of Nondisclosure Agreements?

There are two types of nondisclosure agreements: mutual and non-mutual agreements.

A mutual NDA is an agreement where both parties agree to maintain confidentiality. This includes NDAs between companies discussing doing business together, such as a joint venture.

A non-mutual agreement is a unilateral agreement that only prevents one party from sharing information. For example, you cannot disclose protected information if your employer requires you to sign an NDA. This is usually for workers with access to sensitive data.

New employees may sign an NDA as a condition of their employment agreement or as part of a severance agreement when they leave a job.

The NDA you sign with your employer is generally a unilateral agreement. However, state privacy laws may protect you from disclosure of your personal confidential information. You can sue your employer for invasion of privacy in certain situations. However, these privacy protections are generally outside the NDA.

What Are the Requirements for a Nondisclosure Agreement?

Nondisclosure agreements often have specific confidentiality provisions for the specific employer. However, there are elements considered essential in an NDA:

• The names of the parties to the agreement
• A definition of confidential information
• Any exclusions from confidentiality
• The appropriate uses of confidential information
• The period covered by the NDA
• Miscellaneous provisions regarding when a party doesn’t have to honor an NDA and the method for resolving disputes

Nondisclosure clauses should include as many details as possible so you know what information you cannot share. NDAs should also specify the consequences of violating the agreement. If the nondisclosure provisions are not specific, they may not be enforceable. You may have a wrongful termination claim if your employer fires you for violating the NDA.

Most confidentiality agreements are in writing, dated, and signed by all parties. While state law may allow for oral contracts, business contracts must be in writing in case of a dispute.

What Are the Pros and Cons of Nondisclosure Agreements?

An NDA’s primary benefit is to the employer. However, an NDA can create an atmosphere of mistrust. Some workers view NDAs as an assumption that they will steal confidential information.

An NDA requirement may also deter prospective employees from working for a company. You may not want to deal with the restrictions on what you can talk about, especially after you move on to a new job.

What Happens If Someone Violates an NDA?

A valid NDA is a binding contract. If you violate the agreement, you could face a breach of contract lawsuit. Losing could mean fines and being fired from your job.

Violating an NDA is usually not a crime. However, violating an NDA when working for certain government agencies or contractors may be a criminal offense.

Are Nondisclosure Agreements Always Enforceable?

Not all NDAs are enforceable. NDAs are usually not enforceable if they require employees to keep quiet about illegal activity. Unreasonable restrictions also make NDAs unenforceable. If the confidential information in an NDA later becomes public, you might not be restricted on what you can say about the information.

The #MeToo movement has highlighted employers using NDAs to stop employees from speaking out about sexual harassment. The Speak Out Act now applies retroactively to NDAs and nondisparagement clauses. They are unenforceable if they prevent a victim of sexual harassment or sexual assault from speaking out.

How Long Does a Nondisclosure Agreement Last?

The period covered by an NDA depends on the situation. Some NDAs expire after a year, while others can last 10 years or more. An NDA can even be indefinite, depending on the information it is protecting.

State laws vary in NDA enforcement. Some states treat overly broad NDAs as non-compete agreements if they restrict workers’ ability to work for competitors.

If you have questions about an NDA you signed as part of an employment contract, find an employment lawyer near you to get legal advice.