Employee NDAs – what employees need to know
Employees are quite often provided with employee non-disclosure agreements by their employers – this can be at the start of their employment (in an employment contract), during the course of their employment (if working on something particularly sensitive), or at the end of their employment (in, for example, a settlement agreement or COT3 agreement). In this article we examine what an employee non-disclosure is, when they are used, and how employees can deal with them.
What is an employee NDA (Non-Disclosure Agreement)?
A non-disclosure agreement (also known as an “NDA”) a legal tool often used by employers in contractual agreements (for example, in settlement agreements and employment contracts). Their purpose is to prevent employees from publicly disclosing confidential information, trade secrets, and sensitive matters concerning a business. In the context of settlement agreements, an employee’s silence will usually come in exchange for a financial sum.
When are Non-Disclosure Agreements used for employees?
NDAs are used throughout the course of an employee’s employment, as detailed above.
An NDA is commonly used by an employer in a settlement agreement. This is because it prevents sensitive details of a dispute from getting out, usually for a payment. This benefits employers, as it minimises risks of reputational damage through bad publicity. However, employees can also see several benefits from accepting the agreement, including:
- A definite resolution – Despite the remedy that comes with an agreement potentially being less than what’s obtainable in court, it’s certain. The same cannot be said when litigation proceedings, where the chance of losing and obtaining no remedy is present.
- Privacy – Once a case goes to court, it becomes public information. Sometimes, cases can draw considerable media attention, and if employees want to avoid this, they may prefer taking the agreement.
- Reduced expenses – With litigation comes court fees and other legal costs. If an employee cannot afford or doesn’t want this expense, taking the agreement may be the preferred route.
Why might non disclosure agreements be used in an employment context?
These non disclosure agreements agreements could also be used in a contract of employment to protect legitimate business interests. They will typically prevent employees from disclosing trade secrets and other confidential information once signed, and are important as they will protect client information and sensitive internal information (such as, for example, financial reports and forecasts). Keeping this information secret can be vital to a business, as disclosing it might aid their competitors.
What terms should you expect in an employee NDA?
To ensure the agreement is valid, specific terms must be contained to clarify its scope. The terms parties would expect to see in the agreement include:
- Confirmation of the parties bound by it, typically the employer and employee
- Its reach, outlining what and for how long specific information is protected
- The rights and responsibilities of those bound, which could include returning sensitive information to an employer once an individual’s employment has ceased
- Remedies available in the event of a breach, such as damages payable
- Exceptions that cover instances where disclosure is still allowed, despite signing the agreement
What is the legal position on the use of NDAs in an employment context?
In most circumstances, an employee NDA can be used to establish a legally binding agreement that protects sensitive information from exposure. Despite this, there are limitations to the reach and enforceability of such agreements. Signing one doesn’t:
- Remove an employee’s rights established under the Public Interest Disclosure Act 1999
- Inhibit employees from reporting a possible crime to the police
- Prevent an individual from reporting cases of discrimination, harassment or sexual harassment
- Impede someone from whistleblowing illegal activities to public bodies and regulators
Should such an agreement be deemed invalid or pertain to one of the above exceptions, it won’t be legally binding nor enforceable.
A solicitor advising on the terms of a settlement agreement should discuss the terms of the NDA with their client and make sure that they’re aware of the existence of the clause and know what it means.
Common pitfalls for employees when Using NDAs
An NDA has a clear objective, to protect sensitive information and prevent it from being publicly disclosed. However, a number of issues could arise if they are used inappropriately or incorrectly, including voiding their enforceability.
Firstly, such agreements must not act as a deterrence by threatening employees from making a protected lawful disclosure. As such, the intent and wording of an agreement must be carefully constructed. An agreement may be considered a threat if it outlines monies paid for non-disclosure are repayable following a breach.
What’s more, the legal mechanism shouldn’t be exploited to cover up improper behaviour in the workplace. Instances of misconduct should instead be remedied in a timely, appropriate manner that is consistent with company policy and legal guidance.
In addition, agreements attempting to blur their scope through the use of legalese may be deemed invalid. It is important the employee fully understands the agreement without confusion before signing it. Therefore, using plain English and clarifying the enforceability of the agreement concerning specific disclosures is essential.
Furthermore, it’s good practice for employers to assess the necessity of such an agreement. Sometimes, as part of a company’s process, they request their employees to sign one. However, when consideration is given to an employee’s role, it’s made apparent the agreement isn’t required.
Finally, it’s important to understand that this agreement doesn’t guarantee the protection of an employer’s reputation. Should an agreement be breached and sensitive information disclosed, its mere existence could cause damage. Moreover, pursuing a remedy for the breach in the courts could exacerbate the reputational damage already inflicted.
What is an employee confidentiality agreement – is it different from an NDA?
Often, individuals interchangeably use the terms ‘confidentiality agreement’ and ‘NDA’ (or ’employee NDA’). Largely, the two share the same purpose of protecting confidential and sensitive information from being leaked. However, a non-disclosure agreement is a type of confidentiality agreement, and differences will arise based on the relationship between parties and the terms of the agreement.
What happens if either side breaches a Non-Disclosure Agreement?
Once the NDA has been signed, it is legally binding and enforceable against all parties concerned. Therefore, if a party to the employee NDA breaches its terms, the other party can take legal action against them. As discussed, though, legal action won’t automatically follow a breach, as other factors like reputational damage would be considered first.
How an employment solicitor can assist you with NDAs
By law, employees cannot sign an NDA in a settlement agreement without prior independent legal advice; should an employee sign a settlement agreement without having taken appropriate advice then the agreement would not be binding and enforceable (and the NDA would therefore not apply).
A solicitor could provide the required advice, outlining an employee’s rights, the agreement’s implications and whether it’s reasonable. Subsequently, once they’re happy and believe the agreement’s been fully understood, they would sign it off, ready for the employee’s signature. Therefore, it could be wise to instruct a solicitor to ensure aren’t being breached and the agreement is reasonable.
We hope this guide has outlined the NDA meaning and answered your questions associated with the agreement. If you have any further questions or want help proceeding with your own, contact us now. Redmans Solicitors are employment law specialists who can assess your circumstances and advise on your possible next steps.