Non-Disclosure Agreements in Employment Contracts

Non-disclosure agreements (NDAs) are legally binding contracts that require the parties to keep certain information confidential. Employers often include NDAs in employment contracts to protect trade secrets, sensitive information, and proprietary data. Such NDAs are usually found in the employment contract between the employee and their employer, or in a settlement agreement as the employee exits the company.  This article looks at non-disclosure agreements in the employment context, including the key elements and consequences for breaches of an NDA.

Non-disclosure agreements in employment contracts

An employment contract typically contains a unilateral NDA, where the employee must agree to keep confidential certain information learnt in the course of their work. The subject matter of such an NDA can be narrow or broad, depending on the company’s needs, but generally covers information about trade secrets, patents, customer lists, and company financial information. The NDA must clearly state what categories of information the employee must keep confidential. Printing

If an employee breaches an employment non-disclosure agreement and shares confidential information with an unauthorised party, their employer is entitled to a remedy. The type of remedy is usually specified in the agreement itself, such as injunctive relief, damages for loss, termination of employment, or court order.

Such NDAs do not have to be for a fixed time frame. Some agreements may specify that the obligation only remains while the information is classified, or until it enters the public domain, or for a certain period of time after the end of the employment. To ensure enforceability, any time limit should not exceed what is reasonably necessary to protect the legitimate interests of the business.

Non-disclosure agreements in settlement agreements

NDAs are also found in settlement agreements at the end of a worker’s employment. Often in such cases, an employee agrees not to air a grievance about their employer in return for a one-off payment. In these cases, the terms of the NDAs commonly provide that if the employee breaches the agreement, they must return the payment. Such an agreement is often an attractive alternative to litigation, allowing employers to minimise bad publicity, and securing a payout for the employee without the additional stress of making a claim.

Settlement agreements are typically mutual or bilateral non-disclosure agreement, as neither party can discuss the dispute or terms of the settlement for an indefinite period. In these situations, both parties are often happy to have mutual confidentiality. However, it is in this area that many of the concerns over NDAs have arisen. While NDAs are often genuine attempts to protect a business or allow for a less stressful resolution of a dispute, there has also been a pattern of companies using confidentiality agreements to mask inappropriate behaviour, such as sexual harassment in the workplace.

Recent developments

NDAs in the employment sector have recently been the subject of social and legal scrutiny. Much of the discussion has been negative, particularly in the wake of the #metoo campaign and the historical use of NDAs to cover up accusations of sexual harassment in certain industries. While these agreements were usually valid as long as they complied with Australian contract law, there are serious moral issues at stake in allowing employers to buy their way out of such situations.  

According to the Australian Human Rights Commission (AHRC) one in three Australian workers has been sexually harassed in the workplace in the last five years. The AHRC Respect@Work Report found that NDAs are frequently used to settle workplace sexual harassment cases. This report recommends an overhaul of the use of NDAs in such situations, so that victims of sexual harassment or other abuse can receive compensation without agreeing to an NDA. A 2024 report by the Social Justice Practitioners-in-Residence at the University of Sydney Law School also calls for major reform of the misuse of NDAs, which were found to disadvantage and discriminate against women in the workplace. The report calls for a cultural shift in the legal profession to prompt lawyers to question the use of NDAs in sexual harassment cases.

When is an NDA Binding?

There are certain situations when an NDA is not binding on the employee. Notwithstanding any NDA, employees can make lawful disclosures under whistleblowing law. Additionally, NDAs do not apply when the disclosure is legally required, such as when giving evidence in court. Public policy may also require disclosure, provided that it is genuinely in the public interest for the information to be shared. An NDA is more likely to be upheld in court if it expressly allows for disclosure:

• When required by law;
• When required by a regulatory body;
• To healthcare professionals and police officers;
• To the employee’s legal adviser;
• If the information has already been publicised; or
• Pursuant to the Public Interest Disclosures Act 2013.

NDAs are an acceptable and legally binding means for an employer to protect confidential information in the employment context. Go To Court Lawyers are employment law specialists, with experience in employment contracts, including non-disclosure agreements. Please call 1300 636 846 or make an appointment with our employment law team if you need help drafting contract terms or if you need advice on a non-disclosure agreement.