As workplace disputes around nondisclosure provisions increasingly go viral, reaching as high as the White House, many employers wonder:
Should I ask employees to sign broad nondisclosure agreements when they begin employment?
And are these agreements even enforceable?
Quick caveat: I am not referring to nondisclosure agreements your business uses to protect trade secrets or other proprietary information (for example, the Coca-Cola formula). If there are legitimate, confidential business interests at stake -- which receive protection even without a separate agreement -- nondisclosure requirements at the outset of employment are uncontroversial.
I am also not referring to nondisclosure provisions included in negotiated severance or settlement agreements -- namely, when you require an employee to promise, as a condition of receiving money and/or benefits to which he or she is otherwise not entitled, not to discuss the settlement or any other aspect of the company or his/her employment. These nondisclosure provisions make commercial sense and, until recently, have not attracted criticism (more on that below).
But what about broad nondisclosure agreements under which your job applicants must effectively agree, if they want to work for you, to never say anything publicly that might harm your company? Generally speaking, these agreements, which are broader in scope, are not as common -- but are utilized.
For instance, it has been reported that Snap Inc. requires employees to sign broad nondisclosure agreements to work there, and that the company recently issued a memo outlining a "zero-tolerance policy" against workers disclosing confidential information.
Ironically, the Snap memo was then leaked to media, causing many pundits to question whether the company's employment practices are overly secretive.
Snap undoubtedly has good-faith, legitimate reasons for using these agreements. Certainly, the unwanted disclosure of confidential information -- particularly in the highly competitive tech space -- can harm Snap's business and significantly impact shareholders. However, right or wrong, the public at large might not seize on such nuance and, let's be honest, might not be overly sympathetic toward an employer (even arguably) attempting to stifle employees' speech.
1. Like everything else, nondisclosure agreements carry drawbacks and benefits.
On one hand, the upside of these agreements for your company is obvious: They will deter your people from speaking to media, criticizing your workplace and damaging your brand.
On the other, these agreements might have a chilling effect that may prevent people from reporting workplace issues until it's too late. Taken further, a workplace lacking transparency and accountability may impact profits: unprofessional, incompetent and/or unproductive employees may go undisciplined; and flawed procedures and policies may never change. Finally, using these agreements could potentially chase away great talent.
And then there is the question of whether you are prepared to spend the time and resources monitoring and enforcing/litigating compliance.
2. Courts don't have much experience with broad nondisclosure agreements.
Commercial risk/reward considerations aside, there is also the question of whether and to what extent courts will even enforce these agreements.
Since companies do not often use broad nondisclosure agreements, courts have infrequently opined on their enforceability. In limited litigation, however, employees have successfully challenged overly broad and restrictive nondisclosure agreements, as being against public policy.
Thus, there is no certainty courts will uphold them. And, as with any breach of contract, even attempting to enforce them in court would cost plenty.
3. These agreements don't jibe well with several federal agencies.
For instance, the Securities and Exchange Commission and the Equal Employment Opportunity Commission have targeted nondisclosure agreements that arguably discourage or restrict employees from exercising their rights under anti-discrimination and whistleblower protection laws -- or impede the agencies' work. Further, the National Labor Relations Board has found these agreements may violate employees' rights to discuss terms and conditions of employment (including pay).
4. Many legislators are losing patience.
In public policy settings, the use of nondisclosure agreements in settlement agreements (meaning, at the end rather than the beginning of employment) has recently come under fire.
Specifically, some believe nondisclosure provisions in settlement agreements involving women have allowed workplace harassment to continue unabated. Notably, lawmakers in New York, California, New Jersey, Washington State and Pennsylvania appear to have found these arguments persuasive, introducing measures to bar nondisclosure provisions in sexual harassment settlements. So the question now is: Will lawmakers do the same to broad nondisclosure provisions in employment agreements?
For now, your company should be careful about reflexively incorporating broad nondisclosure provisions into employment agreements. Whatever benefits they offer, their drawbacks are substantial and they might be difficult (and costly) to enforce.
But, if you believe you have legitimate and thoughtful reasons for using these broad provisions, by all means, go for it. However, be prepared, financially, operationally and optically, to sue (or at least credibly threaten to sue) employees who breach. Otherwise, these provisions, with their attendant drawbacks, become nothing more than frowned-upon paper tigers.
This article does not constitute legal advice. The views and opinions expressed in this article are the author's own and do not reflect the official policy or position of any other agency, organization, employer, company, or individual.