What is an NDA and is it so bad?

Non-disclosure agreements, or NDAs, are getting a bad name in the press and sometimes for good reason. But it’s worth considering what they are and how they can be used – for good and ill.

An NDA may be a free-standing agreement between two parties that one or both will not reveal certain specified information. They are often used in business, for example when a consultant needs access to a company’s data to carry out some service, and the company wants to make sure the consultant won’t run off with commercially sensitive information. Both sides benefit. This is normal and uncontroversial.  

But an NDA can also be a confidentiality clause included in a larger agreement, often between an employer and a departing employee, and it is this type of NDA that has drawn criticism. Here, the purpose of the settlement agreement is to resolve a dispute before it reaches trial. The NDA is an extra term of the agreement, requiring the parties not to talk about the settlement or its terms and perhaps the dispute as well. Although it’s a sideshow to the main agreement, the NDA is still important. Sometimes one or both parties won’t sign without it. For instance, both parties may want to move on without anyone else even knowing they had a dispute; or one party may strongly deny they have done anything wrong, but is willing to settle for commercial reasons so long as the fact of settlement stays secret, and this may suit the other party too. NDAs in these scenarios are generally benign and yield good outcomes for both sides.

But NDAs can also be used by a stronger party, often an employer, to silence their employees and prevent them disclosing wrongdoing even when the employer knows that the facts are true and of public or wider interest. In theory, employees can reject the NDA, but in practice they may have no real choice but to accept it if the employer won’t budge and the employee needs money from the settlement to replace a salary that has disappeared. Employers commonly seek NDAs to settle complaints of sexual harassment, and the cover-up is especially pernicious here where the complainant is fired and the harasser left in place and other employees are placed at risk. This is the practice which has provoked strong rebuke, most recently through the #MeToo and #TimesUp movements. 

McAllister Olivarius has had long experience of drafting fair, balanced and reasonable NDAs in cases where both parties reap a real benefit. We also know how to demand and secure settlement agreements without NDAs when appropriate.