Nondisclosure agreements (NDAs) have been all over the news in the past year. The NDAs receiving this media attention (those involving disgraced movie mogul Harvey Weinstein and President Trump) were designed to prevent people from disclosing alleged bad behavior in return for receiving a large sum of money.
Olympic gold medalist McKayla Maroney also signed an NDA as part of her sexual abuse settlement with Larry Nassar, the team doctor for USA Gymnastics later convicted of the abuse of multiple gymnasts.
Most NDAs stipulate stiff penalties for the people who sign them if they break the agreement. These are called "liquidated damages" clauses. These damages might be the amount of the settlement in addition to further monetary penalties.
Most NDAs are drawn up for more mundane purposes than those in the headlines. They're often used to prevent employees from disclosing proprietary information in industries where this is vital to a company's success. Anyone who breaches the NDA may be subject to termination and monetary damages.
Employers may also use them as part of a severance package with an employee to prevent that employee from speaking negatively about the company or its management. These are called "nondisparagement" clauses.
Consumers who reach product liability settlements with manufacturers may have to sign an NDA mandating that they not speak negatively about the company or disclose the terms of the settlement.
Nonetheless, the legal wrangling over these high-profile NDAs can provide valuable insight into under what circumstances NDAs can be breached without the people who breached them being forced to pay the liquidated damages. For example, the lawyer for the woman who signed an NDA agreeing not to discuss an alleged sexual encounter with President Trump points out that Trump never signed it.
Further, if an NDA is used to cover up criminal activity, a court may deem it unenforceable. For example, employees who work in the households of famous people are often asked to sign NDAs to prevent them from going to the tabloids with private information about their employers. However, if they witness illegal activity, they may have a case for breaching the NDA.
If you are being asked to sign an NDA as part of your terms of employment or any legal settlement, you should have your own attorney review it to help ensure that you understand the terms and that none of those terms are unfair or illegal.
Source: MarketWatch, "Read this before agreeing to sign a nondisclosure agreement," Jacob Passy, March 21, 2018