New York Non-Disclosure Agreements: Rules To Know

Nondisclosure agreements (NDAs) limit what an employee or former employee can say about their work with a company to protect confidential information and trade secrets. Non-competes restrict where a former employee can work or start their own business to prevent them from becoming a direct competitor.

New York employment law allows for reasonable NDAs and non-competes. There are additional legal protections for the use of NDAs in severance agreements. However, the state restricts non-competes more heavily because they limit competition and job opportunities. Proposed legislation would ban non-competes in employment contracts. For legal advice on whether your NDA or non-compete is enforceable, talk to a New York employment law attorney.

Uses and Limitations on Nondisclosures and Non-Competes in Employment Contracts

Non-compete and nondisclosure agreements are becoming increasingly common in the workplace. They’re often a requirement for employee onboarding and are baked into severance agreements.

NDAs are designed to protect trade secrets, sensitive information, valuable intellectual property, and other sources of profit. These confidential relationship agreements are more common in professional services industries like technology and finance.

As such, noncompetes and NDAs are typically non-negotiable. “An employee who is given a unilateral NDA, or confidential disclosure agreement, at the start of employment would be hard-pressed to object,” says employment attorney Louis Pechman of Pechman Law Group in New York City. “It’ll raise the red flag with regard to loyalty.”

Determine Whether an NDA Is Fair Before Signing

But it’s crucial for employees to judge whether an NDA template is fair before signing. It should have “a reasonable time period, place, and manner restrictions,” says Mercedes Colwin of Gordon Rees Scully Mansukhani in NYC.

Some non-competes have no expiration date for the receiving party. For example, the Coca-Cola Company protects its Coke recipe. But this kind of broad protection isn’t reasonable for every business owner.

Pechman, who represents clients in the financial and pharmaceutical industries, says a good first step for an employer is to figure out what “type of information can hurt its business and work backward from that” when he helps them craft an NDA agreement. Employers tend to draft their NDAs as specifically as possible to make them easier to enforce. Anything too broad, he says, makes employers look like they’re overreaching when it comes time for enforcement.

“NDAs and the restrictive covenants had a lot more teeth when I first started practicing than they do now because the internet has really made a lot of that information available to the public,” says Colwin.

“An organization protecting its IP is a top priority,” says Marjorie Mesidor, of Mesidor PLLC in Bellport, New York. The only time a person has negotiating power around an NDA is if they’re not privy to the information being referenced. And that’s still a big if.

Non-Disparagement and Confidentiality Agreements

Mesidor sees more leeway within non-disparagement and confidentiality agreements, which are specific types of NDAs. In those agreements, both parties are part of the process and “have a say in the story.”

Confidentiality agreements, for example, can be amended to allow the signee to discuss information with certain close contacts, such as a spouse, attorney, or accountant. However, in these cases, the signee usually still bears all the risk of ensuring the information remains private.

To avoid any misunderstanding about the scope of an NDA, Pechman advises clients to have a conversation with their employer as they’re exiting to clarify the parameters and the unauthorized disclosure of confidential information.

If the situation goes to litigation, Colwin says states like New York tend to lean in favor of employees. “The prevailing sentiment is that employees should have as many opportunities as possible,” she says. “The free-market mentality is that they don’t want to see employees restrained. Essentially, they don’t want to see the opportunities for their employability be limited in the marketplace.”

Employer Confidentiality Agreements

The primary difference between an NDA and a confidentiality agreement is that an NDA typically involves the sharing of nonpublic or proprietary information and business plans.

A confidentiality agreement is created solely to establish confidentiality. Non-disparagement agreements, on the other hand, focus on protecting a party’s reputation.

Restrictions on NDAs in Severance Packages

As with offer letters, NDAs go hand in hand with severance agreements and other legal matters settled between an employer and an employee, such as employment and discrimination disputes. “The nondisclosure is a material part of determining money,” says Mesidor.

Employers cannot use NDAs in severance agreements in employment discrimination cases unless the employee has 21 days to consider the NDA and an additional seven days after signing to revoke the agreement. Employers cannot use these NDAs to restrict workers from participating in government investigations or from disclosing information related to future claims of discrimination.

As with any legal matter, read everything before signing, and assume nothing. “You don’t want handcuffs on you,” says Colwin. “Look at the shelf life of the NDA. Can you live with it?” If you need legal advice about the definition of confidential information for your NDA, talk to an employment lawyer. For more information about this area, see our employment law overview for employees.

Restrictions on Non-Competes in New York

Non-competes face greater scrutiny by courts than NDAs because they restrict competition. Courts may refuse to enforce overly broad non-competes, and they are less likely to be enforceable when an employee had no access to an employer’s trade secrets, confidential information, or other protectable interests. Non-competes are enforceable when:

• Necessary to protect an employer’s legitimate interests
• It does not impose an undue hardship
• It does not harm the public
• It is restricted to a reasonable time limit and geographic scope

Proposed Legislation and Employment Law Changes

Legislators in New York have proposed legislation that would further limit employers’ use of non-competes and NDAs. Senate Bill S372A, the “No Severance Ultimatums Act,” has been sent to the governor. The bill would extend the 21-day legal consultation period and the seven-day revocation period for discrimination cases to all severance agreements.

Senate Bill S4641A is before the Assembly and would prohibit non-competes and other types of restrictive covenants. The law would also give employees a legal cause of action to hold employers liable for using restrictive non-competition covenants. The law would also void any non-compete after the effective date.

Find Legal Help

Employees and job applicants should monitor upcoming legal changes or consult an employment lawyer to understand what they need to know to protect their employment rights. For more information, talk to a New York employment lawyer.