Nondisclosure Agreements Under New York Law
Nondisclosure agreements under New York law legally binds an employee to not disclose any sensitive information about the organization their working with.4 min read
Nondisclosure agreements under New York law, also known as noncompete agreements, are agreements between an employer and its workers in which the employee promises not to disclose any sensitive information about the organization gained during their time at the company. Also, employees may make a commitment not to seek employment in a competitor company for a specific period after they leave the employment of the company.
What Are the Reasons Why Businesses Employ Noncompete or Nondisclosure Agreements?
Companies use a nondisclosure agreement for several reasons (generally referred to as restrictive covenants), including the following situations:
- When the company is involved in activities which grant workers access to sensitive information which can make the clients of the business file legal charges against it if made public.
- Where the business' success is based on certain proprietary information like a client list or patent to produce or deliver its products and making such information public can put it at a competitive disadvantage.
What Does a Noncompete or Nondisclosure Agreement Prevent From Happening?
The function of a nondisclosure agreement is to prevent the wrong people from getting access to a company's sensitive information.
What Is Required for Restrictive Covenants to be Enforceable?
Like all contracts, nondisclosure agreements are only enforceable where there is an exchange of consideration.
Definition of Consideration
Consideration, according to the law, is defined as a "bargained-for exchange between the parties." The implication of this is that each party to the agreement wants something and promises to give the other party something in return.
Why Should Restrictive Covenants Be Signed Before the Commencement of the Employment Relationship?
The reason why nondisclosure agreements should be signed at the start of the employment relationship is that consideration does not exist merely by giving the employee a position and salary as the employee is already entitled to it. To enforce an NDA mid-employment, the employer, who is also called the disclosing party, has to promise additional value with things like a bonus or promotion.
What Is the First Step of Enforcing a Breach of NDA?
Like all other breaches of contracts, sending a "Demand Letter" to the defaulting party is the first step toward enforcing an NDA breach.
What Should Be Included in the Demand Letter?
The demand letter should contain the following:
- A reminder of the existing nondisclosure/noncompete agreement, as well as a summary of the terms of the contract.
- Description of the actions of the employee or ex-employee which constitutes a breach of the NDA.
- A demand requesting the employee's compliance with the terms of the contract within a specific number of days, which is typically a maximum of 10 days.
- Notice that noncompliance will attract redress by all legal means available to the employer.
Why Is the Demand Letter Important?
It's necessary to send the defaulter demand letters as they are one of the most important pieces of evidence to show that the breaching party was warned of its misconduct and advised to comply before the matter went to court.
How Are NDAs Generally Enforced?
NDAs are enforced through legal action which provides monetary compensation. The court will pass a verdict that forces the defaulter to pay the plaintiff an amount of money the victim can prove it lost as a result of the breaching party's disclosure of its business secrets.
What Is the Practical Function of an NDA?
In practice, an NDA serves as a deterrence mechanism which warns employees that they will be sued and also lose money if they breach the contract.
How Does Legal and Civil Enforcement Take Form in an NDA?
The court delivers a verdict forcing the breaching party to stop its misconduct or risk contempt. Civil contempt typically attracts punishing fines and fees.
What Is the View of New York to NDAs?
The New York judiciary has a strong stance on noncompete agreements as the state strongly frowns at preventing people from freely practicing their profession and earning an income.
What Does NY Require Before the Enforcement of an NDA?
Before New York courts can enforce a noncompete agreement, the following requirements must be met:
- The restraint must be seen as reasonable in the sense that it "is no greater than is required for the protection of the legitimate interest" of the plaintiff.
- The courts restrict legitimate interests to "the protection against misappropriation of the employer's trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary."
- There must be a reasonable geographical and temporal limitation to an NDA/NCA.
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