What’s in the DNA of an NDA?

What is the problem with NDAs?

An NDA is a legal contract, often used as part of a settlement agreement in the context of an employee leaving a company, under which a party agrees not to disclose information about specified matters.

Breaching an NDA can lead to claims for damages for breach of contract, and NDAs can often have a chilling effect because in some cases the individual concerned fears a “David v Goliath” situation, being outgunned in any battle by a large organisation with expensive lawyers at its beck and call.

When NDAs fail

The scandal overwhelmed The Weinstein Company. As part of its filing for bankruptcy, it released anyone "who suffered or witnessed any form of sexual misconduct by Harvey Weinstein" from their NDAs.

Michael Bloomberg, aiming to be the Democrats’ challenger to Donald Trump in November’s presidential election, was confronted about the use of NDAs during a prime-time televised debate.  He later said that his media company Bloomberg LP had identified three NDAs “with women to address complaints about comments they said I had made" and agreed that they would be released from the NDAs upon request.

Michael Bloomberg recognised that “NDAs, particularly when they are used in the context of sexual harassment and sexual assault, promote a culture of silence in the workplace and contribute to a culture of women not feeling safe or supported."

New Acas guidance following UK cases

In the UK, the use of NDAs has also attracted controversy in many recent cases, including those involving Sir Philip Green (allegations of racial and sexual harassment), The Alzheimer’s Society (where workplace bullying was alleged) and the President’s Club dinner at the Dorchester (at which hostesses were allegedly groped by businessmen).

Acas, the UK arbitration service, has published new advice on NDAs for businesses and staff. It says that NDAs cannot be used to stop someone from reporting discrimination or sexual harassment at work or to the police; whistleblowing; or disclosing a future act of discrimination or harassment.

Acas emphasises that employees should be afforded a reasonable length of time to consider signing any NDA and to be allowed to consult a trade union or lawyer.

NDAs – DOA?

Companies which roll out NDAs without the most careful of thought are foolhardy.

The notoriety around NDAs should not, however, kill off the concept of NDAs. They can, and do, serve legitimate commercial interests when used appropriately. But they should be drafted in a proportionate and reasonable fashion, tailored to the particular case at hand, and not used on a blanket basis.

• In the employment context, it is right and proper for businesses to use NDAs if necessary to protect, for example, sensitive data such as their trade secrets.
• In the world of mergers and acquisitions, NDAs are commonly encountered and enable information to flow between parties to help them weigh up a possible transaction.
• Those who may potentially finance businesses through investment or loans may be given important information on the strength of an NDA.

The very acronym “NDA” is becoming toxic and more staid terms such as “confidentiality agreement” may come back into fashion. And NDAs may be rehabilitated by being used less often, and with greater circumspection.

Legal advice: better safe than sorry

RWK Goodman regularly advises businesses across a range of sectors on the use of confidentiality agreements.

Businesses should take legal advice whenever appropriate. Those at the chalk face within a business may be too close to the situation; an independent legal perspective is often invaluable.

We can advise on what NDAs should (and should not) be used for; and how far they should (and should not) go. The subtleties of the individual case need to be carefully reflected in the drafting.

We can also guide clients through the process of negotiating and concluding a confidentiality agreement – the nature of the process is often as critical as the content of the document.

Our advice is often crucial for boards of directors or human resources managers or to support the in-house legal function.  Businesses can act confidently with the benefit of advice.

NDAs have come back to haunt Harvey Weinstein, Michael Bloomberg, Philip Green and others. But many other businesses, outside the public eye, have had similar problems. No organisation can afford to be complacent; and all stakeholders should demand that their own businesses exercise the utmost care in this area.