Employers are always looking for different methods to defend against their competitors. One such method is requiring employees to sign either a nondisclosure or noncompete agreement as they begin their employment.
The two types of agreements (NDA and NCA) function often include substantially similar terms. Both are intended to prevent former employees from accepting employment from a competitor and then disclosing confidential information to the competitor. Neither type of contract is uniformly enforceable. New York courts have imposed significant conditions on employers who attempt to enforce a noncompete or nondisclosure agreement against a former employer.
Enforcing a nondisclosure agreement
The first step taken by an employer who wants to enforce an NDA is the writing of a demand letter. The demand letter usually begins by citing the terms of the NDA and then demanding compliance or, occasionally, damages for breach of the agreement. If the employee decides to ignore the demand letter, the employer usually files a lawsuit seeking an injunction against the employee and forbidding the disclosure of confidential or proprietary information.
Defenses to attempted enforcement
No contract can be enforced in New York courts unless the parties have exchanged “consideration.” Consideration is generally viewed as an exchange of items having material value, such as money paid for work. If the nondisclosure agreement is not supported by consideration given by the employer to the employee in exchange for the restrictions of the agreement, the NDA cannot be enforced.
If the agreement is signed before work commences, most courts will usually find consideration supporting the NDA in the overall contract. If the contract is executed after the employee has commenced work, courts are generally inclined to declare the NDA unenforceable because it lacks consideration.
Other limits on NDAs
To be enforceable, an NDA must be reasonable in both geographic scope and duration. An NDA must cover only information that is reasonably necessary to protect the employer’s business interests. Moreover, the NDA must have a limited geographic scope. For example, an NDA cannot have nationwide reach if the employer’s business is limited to a specific region, say New England.
Both employers and employees should consult an experienced employment law attorney for advice on the reach and enforceability of a proposed NDA before the agreement is signed.