Non-Disclosure Agreements between an Employer and Employee: Dos And Don’ts

Companies often own a wide range of valuable intellectual property such as trade secrets, and confidential information such as technical information (commonly known as “know-how”) and commercial information. Any leakage of such information to any competitor or third party who is not bound by the duty of confidentiality will cause irreparable harm to the company’s business since confidentiality of the information is lost forever. Besides, in today’s digital era, confidential information may spread very quickly on the internet.

What is a non-disclosure agreement?

In order to protect confidential information, employers and employees often entered into non-disclosure agreements (the “NDAs”) (also known as confidentiality agreements) before an employee starts working. An NDA is a legally binding document whereby a party agrees to disclose confidential information and in return, the other party undertakes to preserve the confidentiality of information received in the course of dealing between the parties. NDAs come in various forms. It can be an intellectual property clause in a consultancy agreement with an individual or a service company, or a stand–alone document executed in the form of a deed.

Employer’s Dos and Don’ts

It is recommended that an NDA should be signed between an employer and employee prior to the commencement of employment. If the employer needs to disclose additional confidential information to the employee during the course of employment, the parties can enter into further NDAs before the disclosure. Nevertheless, if the employee has started working without signing an NDA, the employer should provide the employee with additional consideration (such as a one-off bonus or promotion) when signing the NDA.

Second, employers should avoid a “one-size-fits-all” approach and simply adopt any NDA templates. To begin with, employers should identify the types of information that require protection and specify the scope of information to be protected in the NDA. The scope of confidential information should be clear, specific and tailored to the employer’s business needs and employee’s role during the course of employment. Examples of confidential information include know-how, pricing information, security procedures and marketing strategies. It will be advisable to extend the employee’s non-disclosure obligation to oral communications regarding confidential information.

The scope of confidential information is not always the broader the better because it may not be always enforceable in the eyes of the court.

Third, the employer should state in the NDA that the ownership of the intellectual property (such as inventions, ideas, patents and patent applications) developed by the employee in the course of employment should belong to the employer.

Last but not least, the employer should include a remedies provision for injunctive relief or damages upon employee’s breach of the NDA.

Employee’s Dos and Don’ts

Although employers generally dominate in the NDA drafting process, employees can still protect their interests by ensuring there are necessary exceptions and defenses to their non-disclosure obligations.

Information that should be excluded from the scope of confidential information includes:

1. information available in the public domain;
2. information lawfully acquired by the employee through a third party; or
3. information already known to the employee prior to the employer’s disclosure.

In addition, the employees should not be restricted from disclosing the confidential information in the following circumstances:

1. in response to a subpoena;
2. as required by the law; or
3. to other employees or third parties, who are also bound by NDAs with the employer, to fulfill the employee’s job duties.

Conclusion

Since NDAs should be tailor-made for different businesses, employers should not adopt a “one-size-fits-all” approach when drafting NDAs. For employees, they should be aware that their non-disclosure obligations do not simply end upon the termination of their employment period. In the event of doubt and concern, employers and employees should seek competent independent legal advice as soon as practicable.

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