How Breaking a Nondisclosure Agreement Works

Penalties for Breaking a Nondisclosure Agreement

Stephanie Clifford, Stormy Daniels Stephanie Clifford, Stormy Daniels
Adult film actress Stormy Daniels (Stephanie Clifford) exits the U.S. District Court of New York for a hearing related to Michael Cohen, President Trump's longtime personal attorney. Clifford had signed an NDA with Cohen but broke her silence. Drew Angerer/Getty Images

Nondisclosure agreements are legally binding contracts that are lawfully entered into by two or more parties. While new workers may feel pressured to sign an NDA as part of an employment contract, no one is technically forcing them. Once an employee or a plaintiff in a lawsuit signs on the dotted line, they are under obligation to play by the rules or suffer the penalties set forth in the contract.

At the very least, someone who breaks an NDA can be sued for breach of contract and any monetary damages related to the breach. For example, if an employee under an NDA shares the secret recipe of his restaurant's famous fried oysters with a competitor and the restaurant loses business, the employee could be sued for those lost profits.

In the case above, the employer could also press criminal charges against the worker for theft of intellectual property. A guilty verdict in that case could result in additional fines or even jail time [source: Mintzer].

As for breaking NDAs used in legal settlements, it's common for plaintiffs to surrender any money received as part of the settlement, plus additional penalties. For example, the NDA that Stephanie Clifford (aka Stormy Daniels) signed promising not to talk publicly about her alleged affair with President Donald Trump includes provisions that she would have to give back the original $130,000 paid to her by Trump's lawyer Michael Cohen plus $1 million for each breach of the contract [source: Romo].

Labor and employment law expert Lobel says that plenty of workers have been sued for breaking an NDA when it pertains to sharing or selling trade secrets. But many more, she says, have been sent cease-and-desist letters threatening lawsuits, which is enough in most cases to scare workers from starting their own companies or joining a competitor.

What is far less common is somebody being taken to court for breaking an NDA signed in a legal settlement. Speaking to Wired, employment attorney Mike Delikat said that in his 40 years of defending employers, he's never had a client sue for breaching an NDA [source: Tiku]. The threat of surrendering the money from the settlement is usually enough to keep people quiet.

There are, however, several situations in which it is perfectly legal to break an NDA. We'll take a look at those next.