Full Disclosure on NDAs

Here’s a piece of information we can share: Non-disclosure agreements are becoming increasingly common in the workplace. They’re often a requirement for employee onboarding and are baked into severance agreements. Especially in professional services industries like technology and finance, employees should expect to be presented with NDAs, which are designed to protect trade secrets, sensitive information, valuable intellectual property and other sources of profit. 

As such, NDAs are typically non-negotiable. “An employee who is given an NDA, or confidential disclosure agreement, at the start of employment would be hard-pressed to object,” says employment attorney Louis Pechman of Pechman Law Group. “It’ll raise the red flag with regard to loyalty.”  

But it’s crucial for employees to judge whether an NDA is fair before signing. It should have “a reasonable time period, place and manner restrictions,” says Mercedes Colwin of Gordon & Rees. Some non-competes have no expiration date; generally The Coca-Cola Company protects its recipe for Coke. But this kind of broad protection isn’t reasonable for every business owner.  

Pechman, who represents clients in the financial and pharmaceutical industries, says a good first step for an employer is to figure out what “type of confidential information can hurt its business and work backwards from that” when he helps them craft an NDA agreement. Employers tend to draft their NDAs as specifically as possible to make them easier to enforce. Anything too broad, he says, makes employers look like they’re overreaching when it comes time for enforcement. Adds Colwin: “NDAs and the restrictive covenants had a lot more teeth when I first started practicing than they do now because the internet has really made a lot of that information available to the public.” 

As with offer letters, NDAs go hand-in-hand with severance agreements and any other legal matters settled between an employer and employee, such as employment and discrimination disputes. “The nondisclosure is a material part of determining money,” says Marjorie Mesidor, a partner at Phillips & Associates. 

Mesidor says the only time a person has negotiating power around an NDA is if they’re not privy to the information being referenced. And that’s still a big if. “An organization protecting their IP is a top priority,” she adds.  

Mesidor sees more leeway within non-disparage and confidentiality agreements, which are specific types of NDAs. In those agreements, both parties are part of the process and “have a say in the story.” Confidentiality agreements, for example, can be amended to allow the signee to discuss information with certain close contacts, such as a spouse, attorney or accountant. However, in these cases, the signee usually still holds all of the risk in ensuring the information stays private.  

To avoid any misunderstanding as to the scope of an NDA, Pechman advises clients to have a conversation with their employer as they’re exiting to clarify what the parameters are and the unauthorized disclosure of confidential information. 

If the situation goes to litigation, Colwin says states like New York tend to lean in favor of employees. “The prevailing sentiment is that employees should have as many opportunities [as possible],” he says. “The free-market mentality is that they don’t want to see employees are restrained. Essentially, they don’t want to see the opportunities for their employability be limited in the marketplace.”  

As with any legal matter, read everything before signing, and assume nothing. “You don’t want handcuffs on you,” says Colwin. “Look at the shelf life of the NDA. Can you live with it?” If you need legal advice about the definition of confidential information for your NDA. For more information about this area, see our employment law overview for employees.