Non-disclosure agreements provide a foundation of trust

| Feb 4, 2021 | Commercial Litigation

A signature moment in presidential candidate Michael Bloomberg’s campaign during the last campaign cycle occurred during Bloomberg’s first debate appearance. At one point, Elizabeth Warren slammed Bloomberg’s (the company) use of a non-disclosure agreement (NDA) to silence women employees who left the company. The implication was that three women had been assaulted or harassed, but they could not say anything. Bloomberg paused for a moment, then gave a shaky response. The next day he made a statement that the women were released from their NDAs, but the billionaire candidate never recovered.

Despite this incident and a reputation for being a tool to cover up unsavory behavior, NDAs serve many valid purposes, and they can be the strong foundation for partnerships between companies and employees, contractors, vendors, partners, and others.

Valid uses for an NDA

These are often signed before sharing a company’s trade secrets that give them (or will give them) an advantage in the marketplace. Examples include:

  • Specific details about a new product or service in development
  • Unique formulas, secret recipes or special sauces
  • Sales contracts, pricing or client information
  • Non-public accounting within the business

What NDAs do not cover

This includes anything outside the scope of the contract during the time of their employment or partnership, as well as knowledge gained before or after the agreement. Other examples include:

  • Details about a company that is common knowledge
  • Information that the company takes no pains to keep secret
  • Evidence from a court subpoena
  • Information in a public filing or for the SEC

Easier to enforce than a non-compete

Businesses often use non-compete agreements to prevent people from becoming a competitor or going to a competitor. But, courts usually side with the defendant and regard them as a restraint of trade because the contracts are too broad. Non-disclosure agreements, on the other hand, protect a business’s interests by keeping trade secrets safe.

Those with questions about drafting an NDA or one they signed (or have been asked to sign) often find it helpful to discuss the details of the situation with an attorney who drafts these agreements or litigates them in court if there is a dispute.