In today’s world of cutthroat business and cyber security concerns, companies go to great lengths to protect their confidential and proprietary information, but is the Non-Disclosure Agreement (NDA) your employees signed enough to truly protect that information?
Drafting and enforcing NDAs is an area where preparation and planning pays off in spades, as NDAs take a considerable amount of thought, care, and, in some cases continual maintenance to be both effective and enforceable. It is a continually evolving area of law and rife with risks and traps to an unwary business. Indeed, NDAs are primarily created under, and enforced through, state law, yet states are far from consistent when it comes to the legality of and public policy concerns of NDAs. Because of this, you must be certain that your NDA conforms to each state in which it maintains operations, which may require different versions of an NDA across multiple states. In Illinois, courts commonly rule that overlybroad NDAs are unenforceable. For example, a federal court in the Northern District of Illinois has refused to enforce an NDA which sought to protect against the disclosure of information concerning “any methods and manners by which Employer leases, rents, sells, finances, or deals with its products and its customers.” Trailer Leasing Co. v. Associates Commercial Corp., 1996 WL 392135 at *1 (N.D.Ill. July 10, 1996).
Similarly, in a more recent case, the court agreed with an employee and rejected the following provisions as overly broad:
- prohibiting the former employee from competing with the employer in any and all lines of business – even if different from those he handled during his employment;
- prohibiting contact between a former employee and all of the employer’s customers – even those with whom he had no direct interactions; and
- defining “confidential information” to include all information regarding the “business or affairs of the Company” and its affiliates. Assured Partners, Inc. v. Schmitt, , 2015 Ill.App. (1st) 141863 (October 26, 2015).
In the past, Illinois courts have sometimes permitted employers to “blue pencil” a defective NDA, meaning to excise or exclude the offending portion of the agreement and to enforce the remainder. However, in this case, the district court refused to modify the NDA or even to enforce other parts of the NDA because of the provisions listed above. Thus, there is no guarantee that a judge will accept the rest of the agreement even if the overbroad or unenforceable provisions could be limited by the court.
In addition, NDAs are much more effective if safeguards are in place in other areas of your company. For example, NDAs can lose their power and be found unenforceable if the employer itself is lax in the treatment of confidential information. In other words, the mere existence of a written NDA does not lessen the need for sound business practices which safeguard company trade secrets and prevent their disclosure. Additionally, an employer can enhance its chances of enforcing NDAs by periodically reinforcing the need for confidentiality and conducting regular training on the proper handling of confidential information. For example, in another recent case, a business required an NDA from a potential partner company, but not from its other vendors, and it ultimately could not enforce the NDA because the company did not make reasonable efforts to preserve the confidentiality of its information. nClosures Inc. v. Block & Co., Inc., No. 13-390 & 14-1097 (7th Cir., Oct. 22, 2014).
So how does an employer or business craft an ironclad NDA? It takes considerable knowledge, experience, and planning to concentrate on protecting what is truly important to you and your business. You can work with the attorneys at Rock Fusco and Connelly, LLC, to craft the right, enforceable NDA for your business.