Employee NDAs: What they are and what Companies and Employees need to know

employment lawbusiness law
Written By Tyler Leitow

Author: Ty Leitow

Last Updated: October 15, 2025

Non-Disclosure Agreements (NDAs) are legally enforceable contracts designed to restrict the use and disclosure of confidential information for a specified period of time.

In the employer-employee context, businesses utilize NDAs to prevent employees from disclosing the company’s trade secrets or misappropriating its intellectual property, both during and after their employment. Since employees often require access to a company’s confidential information to perform their jobs, NDAs clarify what information is protected and formalize the employee's legal obligations concerning that information.

When drafted and used properly, NDAs serve the legitimate business purpose of safeguarding trade secrets and proprietary information. However, when abused, these agreements can be improperly used to silence workplace misconduct or illegally restrict employees' rights.


Company Perspective: Employee NDAs should be Standard Operating Procedure

From the company’s perspective, having employees sign an NDA should be a standard operating procedure. Typically, an employee NDA is signed during onboarding, and businesses seek to achieve three primary goals:

  1. Protect Trade Secrets – such as client lists, pricing and cost data, custom formulas or processes, and unique business methods.

  2. Protect Proprietary Information – including unpublished financial data, product designs, or upcoming marketing strategies.

  3. Maintain a Competitive Advantage – by preventing employees from using or sharing sensitive company information with competitors.

Employee Perspective: When NDAs are Unenforceable

From the employee’s perspective, an overly broad or restrictive NDA can present significant issues, particularly if it attempts to prohibit reporting illegal activity, restrict the use of general professional knowledge and skills, is unreasonable in scope or duration, or unlawfully restricts competition or career mobility.

  1. Prohibiting Reporting Illegal Activity or Whistleblowing. Any NDA that purports to restrict an employee’s ability to report illegal activity, participate in a government investigation, or report information they are legally obligated to disclose will not be enforceable. Specifically, NDAs that attempt to prevent an employee from reporting illegal activity to government agencies or participating in government investigations are generally deemed unlawful under federal law.

  2. Unreasonable Duration. An NDA that restricts disclosure or use of confidential information for one to three years is typically reasonable. Agreements lasting longer than three years may be viewed as excessive and unenforceable, except for legitimate trade secrets. For trade secrets, restrictions may continue for as long as the information retains its legal status as a trade secret.

  3. Overly Broad Scope. NDAs that are overly broad, purporting to cover an unreasonably wide scope of information, are often unenforceable. Specifically, NDAs cannot restrict the use or disclosure of the general knowledge, skills, and experience an employee obtains during employment. This means an employee NDA cannot stop a professional from utilizing the general skills, methods, or judgment developed on the job with a future employer. Additionally, language that is too vague or broad is likely to be held unenforceable if challenged in court. The scope of the NDA, and how "confidential information" is defined, should be specific to protecting legitimate business interests and narrow enough to prevent unreasonable restrictions on employee mobility and competition.

  4. Functioning as a Non-Compete Agreement. NDAs that effectively operate as a non-compete agreement will often be held as unenforceable, particularly if they are unreasonably broad in scope or unrelated to legitimate business interests. Non-compete issues can arise in several parts of an employee NDA:

    • Overly Broad Definition of “Confidential Information”. When an NDA defines "Confidential Information" broadly, for example, as "anything related to the business," or worse, "any knowledge or skills learned during employment", the resulting effect could prevent the employee from using their professional experience in another job. Courts will often refuse to enforce such vague clauses. Similarly, broad, non-specific language that would effectively stop an employee from working for a competitor or another company in the same industry as the employer will usually be held unenforceable.

    • Prohibitions Against Competitive Work. Some NDAs may contain clauses such as: “Employee shall not use any Confidential Information in any business that competes with the Company.” If "Confidential Information" is defined broadly, rather than specifically, and includes general knowledge and skills, the net effect is a functional non-compete, which may be deemed unenforceable as it prevents the employee from working in the same industry.

    • Unreasonable Duration. As mentioned above, generally an employee’s NDA effective period should be no longer than two or three years. Anything longer, such as five or ten years, or indefinitely (yes some NDAs say they are effective forever), Courts will hold such NDAs to be unenforceable.

    • Customer Relationships and Non-Solicitation. NDAs prohibiting the use or disclosure of customer lists and contact information developed during employment are common, especially for sales employees and account managers. Some NDAs also restrict the employee from contacting the employer's customers within a geographic location and/or for a specific time period. If the scope of the language is too broad or overly burdensome (e.g., an employee cannot contact a customer for five years, or may not contact any customer in an entire hemisphere), courts will often reject enforcing that provision.

Public Policy: Legitimate Business Interests vs. Employee Mobility and Competition

Companies and their counsel defend the use of employee NDAs as essential tools for safeguarding trade secrets, proprietary know-how, and maintaining a competitive advantage. This argument has grown more powerful in the digital age, where copying and transferring data and "job-hopping" have become easier.

Conversely, employees and their lawyers argue that companies, sometimes in bad faith, weaponize NDAs to suppress employee mobility, silence misconduct, and extend control beyond the term of employment. Such NDAs limit an employee’s ability to earn a living elsewhere using the knowledge, skills, and experience developed on the job. This arguably conflicts with public policy favoring competition, transparency, and free speech.

Enforcement of Employee NDAs

An NDA is a contract, and a breach allows the non-breaching party to take legal action. The company is typically the plaintiff, and the most common claims arising from a breach of an employee NDA include: (i) breach of contract, (ii) breach of fiduciary duty, (iii) misappropriation of trade secrets, and (iv) copyright infringement.

NDA enforcement claims usually arise after an employee has left the company and started a new job or a business within the same industry as the former employer. In these situations, the company is concerned about the former employee breaching the terms of the NDA (e.g., misappropriating trade secrets or violating a non-solicitation clause). The former employee is often concerned about potential NDA violations or whether the agreement unreasonably restricts their ability to take a new job.

Depending on the facts and circumstances, both parties may have valid concerns. However, the reality is that outside of engineers, senior executives, senior sales managers, or other employees with access to highly sensitive or technical knowledge, employers rarely sue former employees for breach of an NDA.

A clear example of when a company would sue is if a Coca-Cola chemist joined Pepsi and gave them the secret formula for Coke. Outside of something so blatant and injurious, lawsuits over employee NDAs are not very common. Litigation is expensive, and the harm to the company must be real and identifiable. Even if an NDA is litigated, the vast majority of cases are settled out of court.

  • Example 1 (High Risk): If you are the Chief Technology Officer (CTO) for a company that manufactures point-of-sale software, and you quit to start your own point-of-sale software company, it is highly likely the former employer would have viable claims against you for using any trade secrets or proprietary information obtained or created during your employment.

  • Example 2 (Low Risk): If you are a human resources generalist or work in accounts payable, a standard employee NDA should not restrict your ability to take a new job in any meaningful way.

Specific Legal Limitations on Employee NDAs

  1. The Speak Out Act: Pre-Dispute Sexual Harassment NDAs. In the context of alleged sexual misconduct, under the federal Speak Out Act passed in 2022, NDAs entered into before an alleged dispute of sexual harassment or sexual assault arises are not enforceable. This act generally prohibits judges from enforcing NDAs or non-disparagement clauses that were agreed to before the alleged misconduct occurred. Note, however, the Speak Out Act does not prohibit confidentiality agreements that are entered into as part of a settlement after claims have been filed.

  2. National Labor Relations Act (NLRA): Right to Discuss Working Conditions. Under the NLRA, which applies to most private-sector non-supervisory employees (union and non-union), employees have the right to discuss working conditions, including wages, hours, benefits, and workplace safety with their coworkers. Discussing such working conditions is protected activity under the NLRA. Courts and the National Labor Relations Board (NLRB) have held that protected activity can even include employees from different companies discussing their working conditions. A broad NDA that attempts to restrict employees from discussing working conditions would likely be unenforceable under the NLRA for having an unlawful chilling effect on protected employee activity.

  3. Whistleblowing and the Dodd-Frank Act. The Dodd-Frank Act of 2010, and subsequent Securities and Exchange Commission (SEC) regulations, make it illegal for certain businesses to stop employees from reporting particular types of misconduct to the government. The Act specifically provides protection to whistleblowers who voluntarily provide the government with information about companies violating security laws or trading rules (such as fraud, insider trading, and market manipulation). If the company is found guilty, the whistleblower is often eligible for a monetary reward. While companies have the right to protect their confidential information, they cannot stop an employee from exercising their right to report crimes to law enforcement or regulatory authorities. NDAs that restrict an employee’s right to blow the whistle are unenforceable and may themselves be illegal. It is important to note that illegal restrictions on whistleblowing can appear in various company documents, including employee handbooks, company rules and policies, and severance agreements.

Conclusion

Employee NDAs are powerful legal tools, but their enforceability depends on balance and precision. When drafted narrowly and used in good faith, they protect legitimate business interests, such as trade secrets, proprietary information, and competitive advantages, without restricting lawful employee rights. However, when NDAs are overly broad or used to suppress whistleblowing, limit discussion of working conditions, or function as disguised non-compete agreements, they run afoul of federal and state laws and public policy.

Both employers and employees should understand that an employee NDA is not intended to completely silence an employee. Instead, a proper NDA acts as targeted protection for confidential business information. Clear, lawful drafting and mutual understanding of rights and obligations help ensure employee NDAs serve their intended purpose: protecting confidential information and market advantages, while not unreasonably or unlawfully silencing employees or stifling employee mobility and innovation.

For More Information on Non-Disclosure Agreements:

References

Tyler Leitow
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