A perpetual (or even long-term) confidentiality obligation can kill employment NDAs

 

Consider the following all-too-common scenario: employee leaks valuable company information to a competitor and is fired. Company then sues the employee for breach of an employment NDA, which applies to “all proprietary information” that the employee received. The confidentiality obligation is evergreen.

Outcome? In a state where employer-mandated non­compete covenants are enforceable if reasonable, a US court earlier this year struck down this exact NDA as an unreasonable restraint of trade.

The court interpreted the definition of “Confidential Information” to capture the employee’s general knowledge and experience. The omission of any time-bound on the confidentiality obligation was particularly fatal. In fact, the court cited case precedent to the effect that even a five­year confidentiality term would be too long.

The court refused to blue-pencil or reform the NDA. At an instant, the employer’s confidentiality agreements with all its employees were rendered worthless.

The clear lesson of this and other cases is to ensure that the employee confidentiality obligation survives traditional restraint-of-trade scrutiny. But a time-bound obligation is not optimal for the employer ….

Possible strategies to mitigate NDA enforceability risks are the subject of a Redline (redline.net) collaboration here. including relevant clause work product.