What is an NDA?

An NDA is an agreement that prevents a person from disclosing information specified in the agreement.  These are mostly found in employment contracts.  In order for employees to do the job they are paid to do, the business necessarily has to give their employees sensitive or valuable information such as customer data, trade secrets, or even just the intricacies of how the business operates day-to-day.  An employer would understandably be very concerned about having such valuable information. The NDA (whether on its own or in an employment contract) protects this information by having the employee agree to not disclose this sensitive info. 

If I’m bound by one, can I get out?

The quick answer is no.  What I mean by that is if the NDA is properly executed and valid in all of its elements, then it is as enforceable as any other contract.  And the breach of an NDA can be severe and lead to other claims like trade secret misappropriation, copyright infringement, or unfair competition; so it’s important to not take an NDA lightly.  The question now becomes, ‘how do I prove that the NDA I’m in is invalid and not enforceable against me?’  To answer that question let’s dig into the weak points of an NDA.

Is the NDA overly broad?

Courts can throw out an NDA that is unreasonable or overly burdensome. Reasonableness varies between jurisdictions, but typical considerations are the interest of the disclosing party (employer) in keeping the information secret, the period of time the information must be kept secret, the burden on the receiving party (employee), and the interest of the public.

 For example, in Trailer Leasing Co. v. Associates Commercial Corp., a federal court declined to enforce an NDA that protected “any methods and manners by which Employer leases, rents, sells, finances, or deals with its products and its customers.”  In Lasership, Inc. v. Watson, a Virginia state court rejected an NDA that tried to stop an employee from disclosing any information concerning the business of the employer to any person, finding that it was “not narrowly tailored to protect the legitimate business interests” of the employer.  The court explained that the provision was so overbroad that, as written, it prohibited the employee from telling a neighbor anything about the employer – including information that was not proprietary in nature or worthy of confidence – for the rest of her life.

If you read through your NDA and you aren’t 100% clear what it is that you can or cannot disclose, then it may be overly broad and thus void.

Is the information actually valuable or confidential?

For an NDA between employers and employees, the terms of the NDA must be reasonably limited to serve the employer’s legitimate business interest and can’t enforce things that are clearly not confidential.  This doesn’t include things available prior to entering into the NDA, received from a third party, or independently developed without access to any secret information. Typically, a former employee’s skills or knowledge obtained as part of their employment is not confidential information.

Now you may not be in the best position to judge what is or isn’t valuable/confidential to you employer, but if anything stands out as something that should not be protected by an NDA, then a court probably won’t hold you to it.

When did you sign the NDA?

Most NDA’s are incorporated into your contract when you start employment.  If so, then it is likely valid on consideration grounds.  Consideration just means the person signing the NDA needs to get something in return for their promise.  Combined with an employment contract, your promise to not disclose confidential info is given in return for the employment.

But what if you already signed an employment contract that did not contain and NDA, and later on your employer comes to you with a standalone NDA for you to sign.  If you signed it and they didn’t give you anything in return, it’s probably void.  Because it is an individual contract, your employer needed to give you something in return for your promise to keep secrets.  If they just made you sign it and didn’t give you an additional bonus, or raise, or even a $10 Starbucks gift card, then the NDA is void.

You have to keep quiet, but what about them?

If your employer is imposing upon you a responsibility to protect the confidential information in the NDA, then it needs take the same responsibility.  It’s not immediately obvious but you can actually attack your NDA by claiming that your employer disclosed information to third parties before you did.  Courts often hold that employers must take reasonable efforts to maintain secrecy for an NDA to be enforceable.

What constitutes reasonable efforts varies based on the circumstances, but can include using and enforcing NDAs, limiting and tracking disclosures, and keeping the information in a secure location. The employer bears the burden of proving reasonable efforts were taken. Failure to meet that burden may result in their paying damages and the other party’s attorney’s fees in addition to potentially losing the confidential information! 

Again, this probably isn’t something you have the best gauge on, but if it’s very obvious that the subject of your NDA is isn’t being well protected by your employer, or you know that they have disclosed the sensitive info to the very third parties the NDA is trying to prevent, they may have inadvertently negated your NDA.

Can they prove that they will be harmed?

This is a risky one because it almost necessitates that you breach your NDA and hope that they can’t prove damages.  This is also a long shot because if your NDA contains a liquidated damages clause then the issue of proving damages is moot.  A liquidated damages clause sets a formula or sum certain due to the injured party upon breach of the agreement.  Because the damages are spelled out in the contract there’s nothing you employer needs to prove when you breach it.

But if the liquidated damages clause is missing from your NDA, and you think that your breach would create damages of too vague a nature for your employer to quantify, then it may be another potential weak point. 

NDA’s are only as effective as they are enforceable.  The validity of the agreement depends on the language of its specific terms and the items outlined here should give a basic roadmap to someone looking to attack the validity of their NDA.

If you have legal questions about Non-Disclosure Agreements and how you or you might get out from one, contact Revision Legal at 231-714-0100.