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Sworn to silence: More employees signing nondisclosure agreements

(Thinkstock)

(Thinkstock)

In the pile of documents new hires have to sign, there’s one that has been popping up more and more. It’s a document that may be as important as an employment contract, because it can put an employee in some serious financial and legal trouble if it is breached.

It’s the nondisclosure agreement, or NDA. Typically one or two pages long, a nondisclosure agreement is a contract an employee signs to affirm that he or she will not disclose confidential information from the job or, in some cases, won’t disparage the employer if the worker departs.

Employers are using NDAs more and more, from private-sector enterprises to political campaigns. Most recently, Republican presidential nominee Donald Trump sued an ex-campaign worker for $10 million in damages for allegedly violating a nondisclosure agreement and leaking campaign information to the press.

While such agreements once were reserved only for top executives and employees who had access to sensitive information, some companies — such as Baltimore footwear and sports apparel giant Under Armour — are now requiring all of their employees to sign an NDA.

“We’ve seen a huge surge in clients asking for NDAs,” said Lisa Benson, president and CEO of Mary Kraft Staffing in Hunt Valley. “They’ve started asking for them even before telling us what kind of need they have.”

Initially, Benson saw NDAs coming out of large companies, particularly those in the technology sector.

“Within the last 12 months, the requests for us to sign NDAs have been from every new client we’ve had unless they’re just a mom-and-pop shop.”

 ‘Gives me pause’

For people working in technology, NDAs have been commonplace for many years.

One IT professional, Eric, who agreed to be identified only by his first name due to privacy reasons, has been in the industry for almost a decade. He said he has always had to sign one before starting a job. He now works for a gaming company and thinks it makes sense that employers make new hires sign an NDA.

“Software code is proprietary, and the company pays you to make it for them,” he said.

The one problematic bit Eric sees with NDAs is a clause that makes the ex-employee responsible for paying the company’s legal fees and monetary losses if the employer believes he or she shared proprietary information. At the same time, that’s usually only an issue if an employee goes to a competitor or opens her own shop.

“I don’t think about it, but it does give me pause if I am talking to people in the same industry,” Eric said.

NDAs get tricky when there’s a non-compete clause attached to it, language saying the employer can’t work for a competitor for a certain number of years after leaving the company. Usually, a non-compete specifies the type of company or even a geographic region to which it applies.

Eric had a non-compete clause when he was promoted to a senior position at his last job at a real estate firm, but, he said, it wasn’t enforceable in his situation.

Michael Neary, an employment attorney for Lerch, Early & Brewer in Bethesda, writes NDAs for employers. In his experience, non-compete clauses are only enforced if an employer is worried an employee could be in a position to use information gleaned from their current job.

“For many sectors, you just want to protect confidential information but you’re not worried about (people in) certain levels or certain positions being able to find another job,” said Neary.

Non-compete clauses, which are usually baked into NDAs when deemed necessary, are the one challenge Benson sees from a staffing and human resources perspective.

“In those situations, somebody who has done a great job where they are … some (agreements) are tying people up in knots for 18-20 months trying to stop them from getting a job in the same industry,” she said. “Two years is a long time. Quite honestly a year is a long time.”

Benson said that employees who are good at what they do can further their career without using internal information from past jobs.

“It kind of goes against my fundamental belief that if you’re good enough at what you do anyway, you don’t have to have an NDA in place. You do what you do, and good things will happen.”

But as an employer trying to maintain a client list, Benson said he sees why employers want to protect themselves.

“To me, this is part of a continuing trend post the 2008-2009 recession,” she said. “People in all kinds of businesses have been super-devoted to protecting their products and their clients from the competition.”

Range of clients

Benson’s staffing firm does placements for a variety of positions including temporary staffing, direct hire placements and executive searches. The firm’s clients range from mom-and-pop shops to large regional and multinational companies.

IT, health care, technology and scientific companies are those most likely to require NDAs, Benson said. The gaming industry is also big on confidentiality agreements.

In what Benson calls “commercial business,” there also has been an increase in NDAs. A client in that category, such as an insurance company, a law firm with banking clients, or a call center, will ask for one about half the time.

A small percentage of clients outside those two categories will ask for NDAs, such as a library system, large medical practices and some construction firms. Small physicians’ offices or non-banking law firms typically don’t ask for them, said Benson.

An Under Armour store in Harbor East. (File)

An Under Armour store in Harbor East. (File)

“It’s more industry based than position based.”

Among major local companies, Under Armour, which increasingly sees itself as a cutting-edge technology startup while still making shirts and shoes, makes all hires, including temps and interns, sign confidentiality agreements.

“In order to protect the brand and the innovation that sets it apart, while also promoting an environment that fosters new ideas and open collaboration, Under Armour asks for all new hires to acknowledge an obligation to keep company information confidential,” said Under Armour’s general counsel, C. M. Toke Vandervoort.

Tailoring NDAs

As more businesses use NDAs, the lawyers who write them, like Neary, try to create a contract that is customized to the business and identifies information that the agreement is supposed to protect.

“Businesses are tailoring their agreements more than they have in the past,” said Neary. “If you have a broad agreement, it can create a lot of headaches.”

There isn’t a lot of room for an employee to negotiate the terms of an NDA.

“It’s typically a document that the employer has spent a lot of time crafting and has aligned with their organization. I have not seen a lot of negotiations over the terms of an NDA,” said Neary.

When crafting an NDA, employers have make sure they protect the employee’s obligation to comply with lawful orders such as a subpoena or if they have to testify.  Employers also legally have to provide language acknowledging exceptions for whistle-blowing activities, Neary said.

“There’s a lot of moving parts to NDAs now,” he said.

 

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