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Are nondisclosure agreements in business contracts enforceable?

On Behalf of | Sep 26, 2023 | Business Litigation |

The laws that apply to businesses in New York consistently evolve based on the evolution of markets, technologies and innovation more broadly. As businesses develop new policies and expand into new markets, state and federal lawmakers often update existing statutes and/or pass new laws regulating how companies operate.

One of the most scrutinized areas of business law in 2023 in New York involves changes to rules regarding restrictive covenants, such as nondisclosure agreements. Such contract inclusions allow companies to more effectively protect their trade secrets and can prevent outside parties from damaging a brand.

Lawmakers want to limit employer use of such clauses

Although there are currently New York statutes limiting the use of a certain types of restrictive covenants in employment contracts, many businesses still add such terms to their agreements. State lawmakers have introduced a bill that would effectively prohibit the use of non-compete agreements in most employment contracts.

Currently, the law already limits the use of nondisclosure agreements (NDAs) as part of an employment contract or even a severance agreement. Current standards in New York already prohibit businesses from enforcing NDAs against employees if they speak up about illegal activity at a company. Companies could therefore find it challenging in some cases to enforce NDAs related to employment.

Many employers may err on the side of caution by proactively eliminating nondisclosure agreements from their new contracts or finding new solutions to protect their trade secrets. The good news for businesses concerned about nondisclosure agreements with their vendors, service providers or business clients is that such restrictive covenants are enforceable when they are between two companies.

Provided that a business gathers compelling evidence of the violation of the nondisclosure agreement, the civil courts could very well rule in favor of a business that shared private information with another professional or business, only to have those non-public details shared with others. The courts might award a company damages or enforce any penalty clauses included in the NDA.

Organizations seeking to keep details about how they operate or the other companies that they do business with from the public or competitors may find that continuing to use nondisclosure agreements is an effective means of eliminating organizational exposure.

Tracking possible changes to state laws can help to better ensure that New York businesses remain compliant and have the most effective protections in place at any given time. As a result, seeking legal guidance proactively can make a big difference to a company’s liability mitigation approaches.

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