August 2, 2018

Nondisclosure Agreements, Millennials and the #MeToo Movement

Holland & Knight Trade Secrets Blog
Seth J. Welner

Confidentiality agreements or nondisclosure agreements (NDAs) in the workplace have recently been receiving more — and sometimes negative — attention. Employers may want to reflect on how best to utilize these agreements to avoid employee discontent and to improve recruitment. Indeed, the prevalence of NDAs in the workforce is substantial; recent data suggests that one-third of the American workforce is bound by NDAs. But with the rise of the #MeToo Movement, NDAs have taken on frequent attacks, often portrayed by the media and public interest groups as stifling speech or promoting secrecy on matters falling within the public interest. See Orly Lobel, NDAs are out of Control. "Here’s What Needs to Change," Harvard Business Review (Jan. 30, 2018). NDAs have also taken on additional heat as a result of the Millennial generation’s growing presence in the workforce, a group that is looking for freedom of movement between jobs in significantly higher numbers than predecessor generations. See Gallup Business Journal, Millennials: The Job-Hopping Generation.

On the other hand, as employers invest more in technology, innovation, and growth, employers are more concerned than ever about protecting their intellectual property and maintaining a competitive edge. NDA are commonly relied-upon tools for doing so. But one question employers should reflect on is whether an NDA is necessary as to all employees and all information, or if some employees fall entirely outside the ambit of the protections contemplated in the NDA. For example, does subjecting the receptionist to the same NDA requirements as the head of sales make business sense given the public attack on NDAs and the overwhelming dissatisfaction of millennial workers hesitant to sign? If not, it might make sense for employers to use different agreements depending on the position of the employee in the business. Employers may also choose to identify more specifically the protected information, such that only truly sensitive information is protected through the NDA. Of course, this more measured approach could lead to administrative hassles, enforcement gaps, and challenges to efforts to protect information.

Determining the best approach is highly fact intensive and industry and company specific. It should relate to the employer’s purpose behind invoking an NDA in the first instance. For example, is the goal to protect certain identifiable trade secrets or more broadly to protect confidential business information that might not reach trade secret definitions? Or is it invoked to discourage employee movement across the industry? Though usually seen as more restrictive than an NDA, would a noncompete or non-solicitation agreement for higher level, or sales level, employees make more sense? Generally a reasonable approach, tailored to your business’s situation is best.

Additionally, while “signing a broad NDA opens employees up to legal risk beyond what trade secret law otherwise would protect,” see Lobel above, in some states an overly broad NDA may be struck down by a court in its entirety, leaving the employer with nothing but statutory and common law actions against the defecting employee. This is particularly true in states that deem an NDA to be a restrictive covenant subject to additional requirements for enforceability. Yet narrow NDAs may inadvertently open the company up to challenges to their protected information. To address this NDAs should be one aspect of a broader, multi-phase strategy regarding protection of intellectual property.

The #MeToo Movement and the millennial invasion have thrown wrenches into agreements that become common-place in the workforce. Will judicial scrutiny over NDAs increase as the #MeToo Movement continues to grow? These answers will be determined in the next few years.  Employers should therefore take this opportunity to review its current use of NDAs and to determine the best path forward. Businesses should also consider including language clarifying that NDAs are not intended to stifle legitimate workplace complaints or illegal conduct. Indeed, the federal Defense of Trade Secrets Act requires this inclusion to obtain certain types of enhanced relief under that Act.   

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