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Nondisclosure Agreement: Can You Use An NDA To Gag Employees?

nondisclosure agreement ndaAs an employer, you should weigh the pros and cons of using a nondisclosure agreement to keep your employees from revealing to others information that you do not want known outside of your company.

Common Nondisclosure Agreement Uses In Employment

NDAs are frequently used by employers to protect proprietary data, such as trade secrets, business plans, etc. Nondisclosure provisions are commonly part of a written employment agreement rather than a separate contract.

In addition, nondisclosure contracts are a tool used to keep a current or former employee quiet as part of a settlement of legal or other claims that would damage the company if made known to others (e.g. sexual harassment).

Related Article: Non-Compete Agreement – How To Make It Legally Binding

NDA Benefits

Here are three common benefits of using nondisclosure agreements:

(1) Protection of proprietary data you do not want competitors to know about;

(2) Reputation management; and

(3) Minimizing financial loss through settlement instead of risking litigation.

NDA Weaknesses

From an employer’s perspective, a nondisclosure agreement is not bulletproof because there are some things that cannot be kept confidential even if an employee agrees to sign the contract.

Related Article: Can You Verbally Modify A Written Employment Agreement?

For example, if a trade secret protects information that risks public health or safety (e.g. defective device sold that injures customers, company environmental contamination of water supply, etc.), the employee cannot be forced to remain silent to protect the company.

Similarly, an NDA cannot be used to prevent a current or former employee from cooperating with law enforcement with regard to a criminal investigation.

Non-disparagement Agreement

Despite its deficiencies, a non-disclosure agreement generally helps protect a company’s interests. In addition, to reinforce confidentiality, it’s also a good idea to have a non-disparagement agreement with current employees and former employees as part of any settlement. Typically, the non-disparagement provisions are part of the employment contract, settlement agreement, or NDA rather than an independent contract between the parties.

Related Article: Does Your Business Lawyer Draft Contracts That Encourage Lawsuits Or Dispute Resolution?

These provisions typically consist of a reciprocal promise between the parties, both employer and employee agreeing not to say bad things about each other to third parties or the public in general. However, an agreement not to disparage has similar weaknesses to an NDA. For example, the employer cannot rely upon it to prevent a former employee from providing law enforcement with information in a criminal investigation that portrays the company in a bad light.

Related Article: How To Use A Non-Disparagement Clause To Protect Your Business

Where Do You Get An NDA?

The best place to get a nondisclosure agreement to use with your employees is from an experienced business contracts lawyer who handles employment-related issues. If you would like Business Attorney Mike Young to prepare one for you or revise an existing NDA, the first step is to set up a confidential telephone consultation with him.

Mike Young, Esq.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994 and is an angel investor in startups. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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