(Last Updated On: December 21, 2020)
Non-disclosure agreements bear many of the same qualities as a typical contract but, even when all essential elements are present to create legal obligations, some of them may still not be enforceable. There are many circumstances under which a court will refuse to enforce a non-disclosure agreement that otherwise seems to be legally binding.
Whether your Massachusetts employer has requested that you sign a non-disclosure agreement or you are already bound by one, it is critical to consult with an experienced attorney. These contracts often greatly favor the interests of your employer, and they tend to be unreasonable because of the significant impact they have on your ability to move on to new employment. Please contact our knowledgeable employment attorneys at Rodman Employment Law to schedule a consultation about your rights under a non-disclosure agreement, and read on for some helpful information about factors that impact their enforcement.
Overview of Non-Disclosure Agreements
Any agreement between a Massachusetts employer and employee that requires the worker to not disclose certain information learned within the workplace environment is a non-disclosure agreement. Because they mandate confidentiality from employees, these contracts are also commonly referred to as confidentiality agreements.
Non-disclosure agreements are not a recent development in the Massachusetts employment landscape, as employers have been using them for decades to prevent competitors from gaining access to information that could give another company a competitive edge. Recently, confidentiality contracts have risen in popularity in the digital age where software and technology developers seek to protect proprietary information and trade secrets. In the sales industry, employers use them to safeguard client lists that require considerable cost and resource investments to develop. Still, almost any employer in any industry may have reason to have you sign a non-disclosure agreement.
Employers may request you to execute this type of restrictive covenant as a condition of your employment before you begin work, so they can maintain the confidentiality of the information. Other organizations may ask you to consent to non-disclosure provisions upon your termination as part of a severance agreement.
Laws Regarding Enforceability of Non-Disclosure Agreements
Generally, confidentiality agreements are enforceable when they meet the general requirements of a contract. However, due to their potential to restrict employees’ job mobility by inhibiting your ability to freely pursue employment opportunities after you leave a position, there are legal principles at the state and federal level that specifically address non-disclosure agreements.
- Massachusetts Law: The legal landscape regarding confidentiality agreements in the state is derived from both statutory and case law. Massachusetts has not adopted the Uniform Trade Secrets Act as other states have, but there is a provision on taking trade secrets through unlawful means. The statute is directed at such misconduct as embezzlement, stealing, fraud, copying, and other acts, but a violation of a non-disclosure agreement could also be considered unlawful.
If you violate the provisions of a legally binding non-disclosure agreement, your employer may sue to obtain a “cease and desist” order to prevent you from continuing to engage in unlawful acts. Plus, under certain circumstances, an employer can file a lawsuit for monetary damages for all losses related to your breach of the confidentiality obligations. Note that Massachusetts law does allow a court to double the amount of damages if the judge finds it appropriate.
- Federal Law: The majority of statutory and case law on non-disclosure agreements is the domain of the individual states, but there are some federal statutes on the topic. For one, the Economic Espionage Act makes it a crime to misappropriate trade secrets. A broad interpretation of the term “trade secrets” could mean that customer lists and certain proprietary information is protected, giving rise to a private cause of action.
Factors That May Render a Non-Disclosure Agreement Unenforceable
Massachusetts courts view restrictive covenants in a negative light because they tend to place an undue burden on a former worker’s employment options. Judges will only enforce a non-disclosure agreement that complies with state law on trade secrets. Every situation is different, but some factors that could lead a court to find a confidentiality agreement unenforceable include:
- Overly Broad Language: Because they are so closely tied to your right to make a living after leaving your current employer, confidentiality agreements must be narrowly tailored. Overly broad language is likely to be seen as too restrictive if it does not reasonably serve the legitimate interests of the employer. The most common areas where non-disclosure agreements are determined to be unenforceable are where they are not limited in duration, or scope.
- Illegality: Courts will refuse to enforce a contract where the underlying purpose is against the law. To establish illegality, the performance of the contract must require you to commit a crime. In the context of a non-disclosure agreement, illegality may exist where the contract requires you to keep certain subject matter confidential in violation of a legal duty to report it.
- Lack of Consideration: Insufficient consideration comes up often in non-disclosure agreement disputes when an employer requests you to sign one as part of a severance agreement. Unless your employer is offering additional consideration beyond what is already a legal obligation, a court will not enforce it on the basis of lack of consideration.
- Unconscionability: When a confidentiality agreement includes provisions that are so one-sided and self-serving as to be extremely unjust, it may not be enforceable on the grounds of unconscionability. The general benchmark is that no reasonable, informed person would agree to it, so the party who requested the agreement should not benefit from it. Courts point to certain factors in determining unconscionability, including:
- The party who drew up the agreement had superior bargaining power or knowledge;
- The party who signed the contract was in a weaker position due to age, lack of choice, experience, mental capacity, or other qualities;
- There was a complete lack or severe insufficiency of consideration; and,
- Many other circumstances that make enforcement unfair.
Note that unconscionability may be closely linked with misrepresentation and duress, which are described below in detail.
- Risk to Public Health and Safety: Even if otherwise enforceable, a court will not force you to comply with a non-disclosure agreement that creates a risk to public health and safety if you perform it. Because the subject of such a contract is confidential information, this factor shares some characteristics with illegality: An employer cannot force you to keep the details quiet if your silence could be dangerous to others.
- Confidentiality Issues: A court will not enforce a non-disclosure agreement if the information sought to be protected, including trade secrets or client lists, is not actually confidential. Details that are publicly available, known within the relevant industry, or known by you prior to signing the contract do not qualify for protection. This rule also applies where another entity could develop the information without use of the confidential material.
- Duress: A basic tenet of contract law is that agreements must be freely entered into by both parties who mutually assent to the terms and conditions. If assent is affected by coercion, pressure, or threats, it is not truly mutual as required to form a contract. Duress is a defense to a contract, including a non-disclosure agreement, making it unenforceable by an employer against an employee who was wrongfully induced into executing it.
- Misrepresentation: When an employer makes a false or misleading statement of fact in connection with negotiations and execution of a confidentiality agreement, misrepresentation may be grounds for finding the contract unenforceable.
To claim misrepresentation against an employer seeking to enforce the agreement against you, the statement must have been key in inducing you to enter into the employment contract; a statement that was not meaningful or irelevant in encouraging you to sign the non-disclosure agreement will not be grounds for unenforceability.
- Excessive Demands: All contracts must be reasonable in the rights and obligations they impose upon the parties. When unreasonable, excessive, or impractical in its demands, an employer’s non-disclosure agreement may not be enforced by courts.
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