Don't Forget NDA Clauses Can Cover More Than Trade Secrets

First Published in Law360

  • December 22, 2020

Anyone who deals with contracts is accustomed to seeing confidentiality clauses. It seems as though some form of confidentiality or nondisclosure agreement is present in almost every commercial contract, whether one is needed or not. As NDAs become more common, it is human nature to gloss over them, just like we often do with other boilerplate contract language. Failure to pay attention to details, though, can have major consequences, for the scope and enforceability of NDAs often turns on their precise wording. Many people assume that NDAs merely protect trade secrets. That belief was reinforced when the California Court of Appeal for the Fourth Appellate District vacated an arbitration award in Brown v. TGS Management Co. LLC in October, holding that a broad NDA between an employer and a former employee violated California public policy because it operated as a de facto noncompete provision.[1] That decision generated much commentary in legal circles.[2] It also served as a reminder that the enforceability of NDAs depends on numerous factors, including their scope, their commercial context and the governing jurisdiction. Indeed, while courts in many states would follow California's strict approach to NDAs in the employment context, they are more likely to give parties in an arm's-length transaction the freedom to bargain for contractual restrictions that are stricter or looser than those imposed by tort law. In negotiating or litigating confidentiality clauses, therefore, it is essential that clients and counsel read the fine print.

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