A non-disclosure agreement, also known as an NDA or a confidentiality agreement, is an employment contract that forbids employees from talking about, or disclosing, certain proprietary information that they might learn while working for their employer.
These agreements are similar to non-compete agreements. However, non-disclosure agreements are not as restrictive because they only prohibit employees from disclosing certain information, rather than from engaging in any competitive behavior, at all.
The employment contract litigation lawyers at the Katz Law Group strive to represent clients with non-disclosure issues in Massachusetts, including in Framingham, Marlborough, and Worcester. They can help employers and businesses who want to enforce a non-disclosure agreement and protect their interests, as well as workers who are trying to move on with their careers but who have a non-disclosure agreement in their way.
NDAs Restrict Workers to Protect Businesses
Non-disclosure agreements occupy a crucial, but tricky, place in business and contract law.
On the one hand, they protect businesses from corporate espionage and keep the company's workers from undermining the business by spreading its confidential information everywhere. On the other hand, non-disclosure agreements can restrict what a worker can do, both during their job as well as after they leave the business.
With these competing interests, it is clear that the law surrounding non-disclosure agreements have to cater to both sides. If workers could be prohibited from disclosing any information, they would never get another job in a similar field and would even struggle to file complaints about workplace discrimination or harassment. If businesses were left unable to keep their workers from divulging trade secrets, though, it would be nearly impossible to run a successful company.
How Does a Non-Disclosure Agreement Work?
A non-disclosure agreement is a contract between two parties – usually a business and one of its workers. The worker might be an employee or an independent contractor. While the details of the contract will vary, the general theme of a non-disclosure is straightforward: In exchange for the job or additional compensation, the worker agrees to not talk about the business' proprietary information outside of their work for the business.
The agreement will then go on to list what is meant by “proprietary information.” Some of those listings can be very specific. Others will be left deliberately vague, in order to cover types of information that the employer might not have in mind, at the time the agreement is signed. Some common examples of proprietary information are:
- Trade secrets
- Confidential information
- Client or customer lists
- Pricing information
- Vendor lists
- Internal emails
- Work product
- Patent or trademark information
If the worker ever has access or possession to these types of information, the NDA will often require the worker to either give it back to the business when they leave their job, or destroy it.
How Long Does the Agreement Last?
Non-disclosure agreements can specify how long the agreement will last, and how long the worker has to keep the proprietary information to themselves. However, unlike with non-compete agreements in Massachusetts, there is no legal requirement that there be a time limit for non-disclosure agreements. Therefore, the vast majority of them do not have an end date, and continue in perpetuity.
In rare cases, though, a non-disclosure agreement will specify an amount of time that the worker has to keep this information private after they have left the company. These expiration dates pose serious problems for the businesses that use them to protect information that rises to the level of a trade secret. One Massachusetts case has found that expiring NDAs suggested that the business was not being vigilant enough in protecting its trade secrets.
When are Non-Disclosure Agreements Signed?
Most of the time, non-disclosure agreements are signed when the worker is first hired. The non-disclosure agreement is often somewhere in the employment contract, usually near other non-compete provisions like a non-solicitation clause. When a non-disclosure agreement is signed at this juncture, the consideration that the worker receives in exchange for signing it is the job, itself.
Sometimes, though, there is no non-disclosure agreement in the employment contract. In these cases, businesses that want to protect their proprietary information can ask a current employee or contractor to sign a non-disclosure agreement, often in a separation or severance agreement. However, they will have to offer the worker something in exchange for their agreement, or else the contract will not be binding.
Are Non-Disclosure Agreements Legally Binding?
Non-disclosure agreements are like most contracts in that they are legally binding if they are the result of mutual assent and there is consideration.
Mutual assent is a process of offer and acceptance that shows that both the worker and the employer want to be bound by the non-disclosure agreement. This means that, during the negotiation and signing process, there was no:
Consideration is the exchange of things of value. When the NDA is a part of the hiring process, the worker gets the job in exchange for, among other things, the promise not to disclose proprietary information. However, if an employer demands that a worker sign a non-disclosure agreement later on, they will have to offer something new in order to satisfy the consideration requirement and make the agreement valid and binding.
Even when there is mutual assent and consideration, though, there are some circumstances that can make a valid NDA unenforceable:
- The terms of the agreement are unconscionable
- The language in the NDA is so broad that it does not reasonably serve the legitimate business interests of the employer
- The non-disclosure agreement requires the worker to violate the law by, for example, holding information in confidence when they actually have a legal duty to report it
Information That Non-Disclosure Agreements Do Not Cover
Just because certain information is listed on a non-disclosure agreement does not mean that it is always covered by the agreement – there are exceptions to the scope of the agreement. For example:
- Workers restricted by a valid NDA can reveal proprietary information if it has already become known to the public, so long as the worker was not the one responsible for it becoming public, in the first place
- Information that the worker can prove they already knew before signing a non-disclosure agreement is not covered
- Common knowledge in the industry is not covered by an NDA
- Workers can disclose proprietary information in the course of reporting illegal behavior, workplace safety problems, or discriminatory or harassing behavior
In these cases, the worker can make reasonable disclosures of proprietary information without violating the NDA. However, just because they can make some disclosures does not mean that the entire non-disclosure agreement can be ignored. Talk to a lawyer before divulging information that could violate the terms of the agreement.
Enforcing an NDA and the Penalties of a Violation
Violating a non-disclosure agreement is a serious event. Employers who learn of a violation can pursue two remedies:
- A temporary restraining order, often in the form of a “cease and desist” order, against the worker to stop them from continuing to disclose proprietary information, and
- Monetary damages.
The monetary damages can be significant.
Some non-disclosure agreements set out what those damages are in the agreement, itself. For example, they might claim that each violation will lead to $10,000 in damages. These are called liquidated damages, and courts will enforce them if they seem like a reasonable amount for a given violation, and if it would be difficult for the company to prove what their financial losses actually were.
The employer can also go about proving their actual damages, or their financial loss that stemmed from the disclosure of their proprietary information. Depending on what was divulged, this can be a considerable amount, especially if the violation involved a trade secret that led to a business competitor's success, at the expense of the employer.
Finally, employers frequently pursue the attorneys' fees they have spent in protecting their rights under the NDA. This would mean that the worker, if found to be in violation of the non-disclosure agreement, can have to pay their employer's legal fees.
Massachusetts Employment Contract Litigation Lawyers at the Katz Law Group
Non-disclosure agreements are a very important aspect of employment law, both from the perspective of the business and the worker. Strong NDAs can protect businesses by insulating their secrets and private information about the business from others who would use it for their own gain. Overly-strong non-disclosure agreements, though, can put such stringent limitations on workers that they are no longer enforceable in court.
The employment contract litigation at the Katz Law Group strive to legally represent both business interests and workers in disputes over non-disclosure agreements in Massachusetts. If you are a business and want to enforce an NDA, or if you are a worker whose livelihood is being threatened by the terms of a confidentiality agreement that you signed with a recent employer, contact them online or call their law office at (508) 480-8202.