Why Employee NDAs Matter
Employees are often the people with the deepest access to your company's confidential information. From customer databases and financial records to trade secrets and strategic plans, your team members interact with sensitive data every day. An employee NDA establishes clear rules about how that information should be handled, both during and after employment.
When to Introduce an NDA
During the Hiring Process
The ideal time to present an NDA is before or on the first day of employment, as part of the onboarding paperwork. When the NDA is signed at the start of employment, the job itself serves as the legal consideration (the benefit the employee receives in exchange for signing).
For Existing Employees
Asking current employees to sign an NDA mid-employment can be trickier. In many jurisdictions, continued employment alone may not qualify as sufficient consideration. You may need to provide additional consideration, such as a bonus, raise, promotion, or access to new responsibilities, to make the NDA enforceable.
Before Termination or Departure
While it is possible to ask an employee to sign an NDA as part of a severance agreement, this is often less effective than having one in place from the beginning. An employee who is leaving may be less inclined to cooperate, and the terms may need to be more favorable to the departing employee to be enforceable.
Make NDAs a standard part of your onboarding process so that every employee signs one from day one. This avoids the complications and additional costs of introducing NDAs later.
What to Include in an Employee NDA
Scope of Confidential Information
List the specific categories of information the employee will have access to and must protect. For most employers, this includes:
- Trade secrets and proprietary processes
- Customer and client information
- Financial data and business plans
- Product development and research data
- Pricing strategies and vendor terms
- Internal communications and meeting content
- Software, source code, and technical documentation
Duration of Obligations
Specify how long confidentiality obligations continue after the employee leaves. A period of two to five years is typical for most business information, while trade secrets should be protected indefinitely (or for as long as they maintain trade secret status).
Permitted Disclosures
Include clear guidance on when the employee is allowed to share confidential information. This typically covers:
- Disclosures necessary to perform their job duties
- Disclosures required by law, regulation, or court order
- Disclosures authorized in writing by the company
Return of Materials
Require employees to return all company materials, documents, files, devices, and copies of confidential information when their employment ends. Include electronic copies stored on personal devices.
Whistleblower Protections
Federal law (the Defend Trade Secrets Act) requires that employee NDAs include a notice informing employees of their right to disclose trade secrets to government officials and attorneys for the purpose of reporting suspected violations of law. Failing to include this notice can result in the loss of certain legal remedies.
The Defend Trade Secrets Act of 2016 requires that employee confidentiality agreements include a notice about whistleblower protections. Omitting this notice can limit your ability to recover exemplary damages or attorney's fees in a trade secret misappropriation case.
What NOT to Include
Overly Broad Restrictions
An NDA that attempts to restrict an employee from using any knowledge or skill gained during employment will likely be struck down by a court. Employees retain the right to use their general skills, training, and professional experience in future roles. The NDA should only cover specific confidential information, not general industry knowledge.
Non-Compete Provisions
While some states still allow non-compete agreements, many are moving to restrict or ban them entirely. The Federal Trade Commission has also proposed broad restrictions. Do not embed non-compete provisions in your NDA — keep them as separate agreements so that the invalidity of a non-compete does not jeopardize the enforceability of the NDA.
Unreasonable Penalties
Including disproportionate financial penalties for breach can make the NDA unenforceable. Courts may view excessive liquidated damages as punitive rather than compensatory, which can void the provision or even the entire agreement.
Making Employee NDAs Enforceable
Consideration
Ensure there is valid consideration for the NDA. For new employees, the job itself is sufficient. For existing employees, provide additional compensation or benefits.
Reasonable Scope
Keep the definition of confidential information reasonable and specific to your business. Overly broad NDAs are more likely to be challenged and less likely to be enforced.
Clear Language
Write the NDA in plain, understandable language. Employees should be able to read and understand their obligations without difficulty. Complex legal jargon can lead to claims that the employee did not understand what they were signing.
Consistent Application
Apply NDAs consistently across your organization. If only some employees are required to sign NDAs while others in similar roles are not, it can undermine the perceived importance and enforceability of the agreements.
Proper Execution
Make sure the NDA is properly signed and dated by both parties. Provide the employee with a copy for their records. Maintain originals in your HR files.
Handling Employee Departures
When an employee who has signed an NDA leaves your company, take these steps:
- Conduct an exit interview that reviews the employee's confidentiality obligations
- Collect all company property including laptops, phones, badges, keys, and documents
- Confirm deletion of company data from personal devices
- Provide a copy of the NDA as a reminder of ongoing obligations
- Document the departure process in case enforcement becomes necessary later
Employee NDAs for Remote Workers
With the rise of remote and hybrid work, employee NDAs should address the unique challenges of a distributed workforce:
- Requirements for secure home office environments
- Rules about working in public spaces where screens may be visible
- Guidelines for using personal devices to access company information
- Protocols for video calls and screen sharing where confidential information may be displayed
Create Your Employee NDA
PactDraft makes it straightforward to create comprehensive employee NDAs that protect your business while remaining fair and enforceable. Answer a few questions about your company, the types of information your employees access, and your specific needs, and generate a professional NDA ready for signing.