Non-Disclosure Agreements

Over one-third of the US workforce is bound to their company by a non-disclosure agreement (NDA). NDAs can force employees to be silent about anything from trade secrets to sexual harassment and assault and have been growing in number as companies become increasingly worried about competition and reputation. It is important as an employee to understand what your employer is asking you to sign. To learn more about NDAs and the workplace, read below:

1. What is an NDA and why is my employer asking me to sign one?
A non-disclosure agreement (often referred to as a confidentiality agreement), is a legally-binding contract which governs the sharing of information between people or organizations and sets limits on the use of the information. A recent Harvard Business Review article indicated widespread use in the workplace, with over one third of the US workforce subject to them.

An NDA in the workplace is a legal contract that keeps employees from revealing their employer’s secrets. The NDA creates a confidential relationship between the employee and their employer. The NDA stipulates the information that is to remain confidential and how information can be used.

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2. When may I be asked to sign an NDAs?
There are typically three points during your employment relationship when you may be asked to sign an NDA.

  • You may be asked when you are hired to sign an NDA, to keep the company’s trade secrets or business strategies confidential. An NDA and a non-compete agreement limiting who you can work for in your next job may be contained together in the agreement you sign when you are hired.
  • If you are terminated, you may be asked to sign an NDA in exchange for a severance payment. Since employers are generally under no legal obligation to provide a severance agreement, this strategy is designed to prevent you from disclosing the terms of the severance and possibly that you received one at all. The severance agreement may also contain a release limiting the conditions under which you can file a lawsuit against the company.
  • Employers often use NDAs to keep the terms of settlement agreements confidential, which may also have the effect of preventing toxic practices within their workplace, including sexual harassment, from being exposed or known to other employees who may have similar experiences.

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3. What am I agreeing to do when I sign an NDA?

The specific terms of an NDA will differ depending on the circumstances. The information that may be covered by an NDA is virtually unlimited. Generally, by signing an NDA, you promise to not release the confidential information shared with you by your employer.

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4. Why are NDAs often used with victims of sexual harassment or sexual assault in the workplace?
NDAs are often used to stop the victims from speaking out. They are included in settlement agreements and prohibit victims of sexual harassment or assault from publicly discussing the settlement and what happened to them. Many victims fear the legal action that may be taken against them if they violate the terms of their agreements.

No survivor is obligated to share their story. Some survivors prefer to keep the harassment or assault private and willingly enter into an NDA. However, NDAs can have significant consequences. For example, the NDAs used in sexual harassment cases can enable the person or company to repeat the same harassment and assault for decades by silencing victims from warning other’s about the behavior.

Pending bills in state legislatures across the country, currently including in California, New York, and Pennsylvania, would prohibit employers from requiring employees to sign agreements that block them from exposing alleged workplace sexual harassment.

If you are a victim of sexual assault or harassment in the workplace and you have signed an NDA, you may still be able to break your silence. Because NDAs can differ, you should consult with an attorney to discuss whether you will be vulnerable to legal action for violating settlement terms or for defamation.

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5. What if I break the terms of my NDA?
What may happen after you break the terms of an NDA may depend on what’s in your agreement. Take a look at the agreement you signed, what information it relates to, and what the consequences of breaking the agreement are. Quite often, in practice, many companies do not go after NDA violators, because doing so risks bringing even more attention to an often egregious workplace issue. However, it is also a likely scenario that your employer may be able to claim breach of contract and take legal action against you.

You should consult a lawyer before breaking the terms of an NDA. If you’re bound by an agreement not to disclose trade secrets, there is a chance that the language could be construed to cover any public statements about what happens in the workplace, although it’s not yet clear whether that argument would hold up in court.

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6. When would I be asked as an employee to sign an NDA?

As an employee, you may be asked to sign an NDA as a condition of employment, as part of a severance package, as part of a settlement agreement or in a personal context.

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7. What terms should I look out for in an NDA?
· Be cautious of an overbroad agreement that seems to be less about protecting confidential company information and more about forcing employees to be silent about everything regarding the company.

· Check for liquidated damages provisions which specify a cash amount an employee must pay per breach of an NDA. If the number is very high, it may create a dynamic where employees are terrified to come forward even about illegal company behavior because they are afraid of being sued. Courts may throw out a provision where the damages/penalties for violating the agreement are much greater than the harm caused to the company when the agreement is violated.

· Time limits that go on for your entire lifetime are overreaching and should raise a red flag. They may be considered reasonable by a court if they are for a shorter period of time, but that will vary by state.

· Forced arbitration clauses or clauses requiring private and confidential arbitration rather than in a public court of law. While those clauses may be legal to include, you should be aware of what they mean.

If what you are told is different from what you see in the written agreement, you need to clarify before signing because the written agreement is binding. Additionally, if the NDA prevents you from bringing discrimination or harassment claims to the proper authority than the NDA is unenforceable.

If you are unsure about the terms of your agreement, you should speak with a lawyer for further clarification.

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8. Can I negotiate the terms of an NDA?
Sometimes, yes. If you are asked to sign an NDA, you can ask to modify it, but an employer may or may not be receptive to this suggestion. If you can change the NDA, you may consider adding the following provision:

“Nothing prevents [Your Name] from using his/her own generalized skill, knowledge or expertise that he/she already had, or is publicly available.”

Including this clause in an NDA puts the burden on the employer to prove what you already knew in the case of an alleged breach.

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9. What cannot be protected (required to be kept confidential) by a Non-Disclosure Agreement?
· Anything that is a matter of public record

· Any information that employee has prior knowledge of or gained from sources other than their employer

· Any information that is common knowledge in a field

Additionally, an NDA is not meant to protect a company from doing something illegal. If your company has unethical or illegitimate business practices, you still have a right to whistleblow (inform) to proper authorities.

An NDA also cannot prohibit an employee from filing a sexual harassment complaint with the Equal Employment Opportunity Commission.

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10. Are there different types of NDA’s?
Yes, there are two types; unilateral and mutual.

A unilateral NDA is more commonly used. It is used when a business or employer discloses information to their employee, and the employee receives the information and agrees to keep the information confidential.

A mutual NDA is used when the two parties agree keep confidential each other’s information. The mutual NDA is generally used between businesses.

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11. In addition to signing an NDA, my employer has included a nondisparagement clause. How is this different from an NDA?

A nondisparagement clause generally prevents an employee from saying anything negative about the company, even on social media. Nondisparagement clauses have gained popularity in the startup world where they are often used to hide the sexist culture in the tech industry. If you are subject to a nondisparagement clause, it is best not to publicly discuss your employer, and especially not online, where proof of your comments could be saved as evidence of a violation. Consult with an attorney to review the agreement before speaking out, even anonymously.

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12. I have heard the new tax law could have negative consequences for victims of sexual harassment and assault who have settlements conditioned on NDAs. What are these negative consequences?
Section162(q) of the new tax bill was originally intended to stop businesses/employers from being able to deduct sexual misconduct settlements conditioned on NDAs, however it currently states, “no deduction shall be allowed under this chapter for—(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a non-disclosure agreement, or (2) attorneys’ fees related to such a settlement or payment.”

Some have interpreted this statute to apply to both businesses and individuals. Therefore, under this language of this statute, victims of workplace sexual assault or harassment who settle their claims subject to an NDA, would be prohibited from deducting the portion of their settlement allocated for attorney’s fees, and would have to pay taxes on the entire amount they were given for the settlement.

As a result of this uncertainty, Sen. Robert Menendez has announced plans to introduce legislation clarifying that §162(q) is meant to apply only to businesses/employers. In the meantime, you should consult with a tax attorney or accountant knowledgeable in this area to determine what amounts of your settlement payment are deductible.

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13. Which states have restrictions related to NDAs?
The following states have laws in place to bar or limit NDAs in sexual harassment cases.

Arizona. House Bill 2020 allows victims of sexual assault and sexual harassment to break nondisclosure agreements without penalty when communicating with law enforcement or in court proceedings. Under the bill, people who previously signed non-disclosure agreements would be allowed to break those agreements without penalty if asked by law enforcement or during a court proceeding. 

California. Senate Bill 331 (known as the “Silence No More Act”) prohibits nondisclosure clauses in settlement agreements involving workplace harassment, discrimination, or retaliation on any protected bases. The bill also requires that any non-disparagement or other contractual provision that restricts an employee’s ability to disclose information related to the conditions of the workplace must include specific language related to the employee’s right to disclose information about unlawful acts in the workplace. Senate Bill 331 is not retroactive and applies to agreements entered on or after January 1, 2022. 

Senate Bill 331 expands protections in Senate Bill 820 (known as the Stand Together Against Non-Disclosure Act). It went into effect on January 1, 2019 and prohibits the use of confidentiality provisions in settlement agreements for actions including claims based on sex.

HawaiiHouse Bill 2054 HD1 SD1 prohibits employers from requiring an employee to enter into a nondisclosure agreement pertaining to sexual harassment or sexual assault as a condition of employment. The law also prohibits employers from retaliating against an employee for disclosing or discussing sexual harassment or sexual assault.

Illinois. Senate Bill 75 protects employees, consultants, and contractors who truthfully report alleged unlawful discrimination and harassment or criminal conduct in the workplace by prohibiting nonnegotiable confidentiality obligations, waivers, and mandatory arbitration of allegations of discrimination, harassment, or retaliation unless the agreement demonstrates that the employer and employee mutually agreed to the provisions.

Maine. Maine’s prohibits employers from requiring applicants, interns, or employees to enter into settlement, separation, or severance agreements that:

  • limit their rights to report, testify, or provide evidence to a federal or state agency that enforces employment or discrimination laws;
  • prevent them from testifying or providing evidence in federal of state court proceedings in response to a legal process; or,
  • prohibit them from reporting conduct to a law enforcement agency.

The new law also provides that settlement, separation or severance agreements may include provisions preventing the subsequent disclosure of factual information relating to a claim of unlawful employment discrimination only if:

  • the agreement expressly provides for separate monetary consideration for the employee’s guarantee of nondisclosure that is in addition to any other compensation;
  • all parties to the agreement are subject to the nondisclosure requirement;
  • the agreement clearly states that the employee retains the right to report, testify, or provide evidence to federal and state agencies responsible for enforcing employment or discrimination laws, as well as the right to testify and provide evidence in federal and state court proceedings; and,
  • the employer retains a copy of the agreement for six years from the date the agreement is executed or the end of employment, whichever is later.

See the law for more information.

Maryland. Md. Code Ann., Labor & Employment Section 3-715 (known as the Disclosing Sexual Harassment in the Workplace Act of 2018) declares that any provision in an employment contract or policy that waives any right or remedy to a claim of sexual harassment or retaliation for reporting sexual harassment is void as against public policy.  The Act also includes a separate subsection prohibiting retaliation based upon an employee’s failure to enter into such a prohibited contract.

New Mexico. House Bill 21  limits the use of nondisclosure agreements in settlements of sexual misconduct claims. The law prohibits employers from requiring, as a condition of employment, that an employee agree to a nondisclosure agreement in a settlement agreement relating to a claim of sexual harassment, discrimination, or retaliation whether occurring in the workplace or at a work-related event[s] coordinated by or through the employer. Assembly Bill 60 nullifies provisions of a contract or settlement agreement if they restrict one party from testifying against another about a crime, sexual harassment; discrimination or retaliation. 

New Jersey. Senate Bill 121 prohibits employers from concealing the underlying details of sexual harassment and other claims of discrimination using nondisclosure or confidentiality provisions in settlement agreements. The law also protects employees from  being retaliated against for not entering into any agreement or contract that requires them to waive their substantive or procedural rights. Under the law, employers are responsible for the harm caused to employees who are forced to work in a hostile work environment Senate Bill 121 applies to all workplace discrimination claims alleged or brought under the New Jersey Law Against Discrimination.  

New York. New York General Obligation Law Section 5-336  prohibits employers from requiring confidentiality of underlying facts of all employment discrimination claims (including sexual harassment) in settlement agreements unless the confidentiality provision is the alleged victim’s preference.

Oregon. Senate Bill 726 (known as the Workplace Fairness Act), prohibits employers from entering into a nondisclosure, nondisparagement or similar confidentiality provision with an employee or applicant that prevents the individual from discussing discrimination or sexual assault that occurred at work or between employees. Employers may enter into a settlement or severance agreement that contains a nondisclosure or no-rehire provision in two circumstances:

  • An employee claiming discrimination or sexual assault “requests” to enter into an agreement and is provided a seven-day period to revoke the agreement; or
  • An employee has engaged in unlawful discrimination or sexual assault according to the employer’s good faith determination. 

Tennessee. Tenn. Code Ann. § 50-1-108 prohibits employers from requiring an employee or prospective employee to sign or renew a non-disclosure agreement regarding sexual harassment in the workplace as a condition of employment. 

Vermont. House Bill 707 (known as “An Act Relating to the Prevention of Sexual Harassment) prohibits employment contracts containing provisions that prevent an employee from disclosing sexual harassment or waiving an employee’s rights or remedies with respect to a claim of sexual harassment.

Virginia. Va. Code § 40.1-28.01 (known as Nondisclosure or Confidentiality Agreements; Sexual Assault, Condition of Employment) prohibits employers from requiring job applicants or current employees to execute nondisclosure agreements that would conceal the details of any sexual assault claim an employee may have against the employer.

Washington. Senate Bill 5996 prohibits employers from requiring employees to sign a nondisclosure agreement, waiver, or other document that prevents the employee from disclosing sexual harassment or sexual assault occurring in the workplace as a condition of employment.

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