How Breaking a Nondisclosure Agreement Works


Attorney Michael Avenatti (R), who represents adult film actress Stormy Daniels, arrives to court in Los Angeles, July 2018. Daniels is suing President Donald Trump and his former personal attorney, Michael Cohen, claiming that she was defamed and campaign finance law violated by brokering a NDA just before the 2016 presidential election. Avenatti maintains that the agreement is invalid because Trump did not sign it. David McNew/Getty Images

After weeks of interviews, you've finally been offered a job at Acme Solutions, one of the hottest software startups in Silicon Valley. The salary is sweet, the benefits are even sweeter and you can't wait to start writing code for your genius CEO. All that's left is to head down to human resources and sign on the dotted line.

More like dotted lines. The employment contract is thicker than a dictionary and there are tabs to sign here, here and a dozen more "heres." The HR rep assures you that it's all standard boilerplate language, and since you don't know a thing about employment law, you take her word for it.

One section catches your eye, though. It's the nondisclosure agreement or NDA. By signing it, you agree not to disclose any Acme trade secrets, including but not limited to:

"patent applications, information relating to inventions, discoveries, products, plans, calculations, concepts, design sheets, design data, system design, blueprints, computer programs, algorithms ... customer lists, supplier identity, marketing and sales plans, financial information, business plans, costs, pricing information, etc."

Seems fair enough. Acme wants to protect its proprietary data and business plans from its competitors. You're not a corporate spy, so no worries there. But what about this other section, the "non-disparagement" clause:

"You shall not at any time, directly or indirectly, disparage Acme Solutions, including making or publishing any statement, written, oral, electronic or digital, truthful or otherwise, which may adversely affect the business, public image, reputation or goodwill of the company, including its operations, employees, directors and its past, present or future products or services."

Huh, that's a bit much. If you leave the company 10 years from now and tweet that its breakroom coffee was rank, could they sue you? It makes you think about those rumors floating around about the genius CEO, that he's settled multiple sexual harassment lawsuits with some former employees. None of them have talked publicly, though. You're starting to understand why.

The HR rep is waiting for your signature. You ask if anyone has ever refused to sign the nondisclosure and non-disparagement agreements. "Nope," she says. "Not if they wanted to work here."

So, you sign the contract, joining more than one-third of the American workforce who are currently bound by a nondisclosure agreement [source: Lobel].

It wasn't always like this. Nondisclosure agreements used to be stuffy legal documents reserved for safeguarding company secrets when meeting with prospective partners and investors. Now even visitors to the headquarters of Google or Facebook are required to sign an NDA before getting past security [source: Bond and Croft]. Companies live and die by their ideas, which is dangerous when employees are frequently poached by competitors. Hence the lengthy and restrictive employment contracts.

While violating an NDA to sell trade secrets to the competition seems like an obvious legal and ethical violation, not all NDAs are about protecting intellectual property. In the wake of the Harvey Weinstein sex scandals, the accusations against President Donald Trump and the burgeoning #metoo movement, important questions are being raised about NDAs being used to silence victims of sexual harassment.

The most important question may be, when is it OK to break an NDA?

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