Shift Happens: Why NDAs aren’t as powerful as you might think

NDAs serve a specific purpose in corporate culture.


Credit: iStock

NDAs serve a specific purpose in corporate culture

You’re president of a company that has been hit with two sexual harassment lawsuits in the past year. To avoid future problems (and the attendant bad PR) you’ve decided to make all employees sign a comprehensive non-disclosure agreement covering any possible workplace wrongdoing. Will this fly?

In the television series Severance, as a condition of employment new hires of fictional Lumon Industries are medically bifurcated into completely separate entities—their work selves (“innies”) and outside-of-work selves (“outies”)—thereby ensuring that what happens in Lumon stays in Lumon. Cue ominously dark music over a TikTok loop of George Orwell saying, “I told you so.”

As the series slyly observes, working at Lumon is “the ultimate work-life balance.” In a way, however, it’s also the ultimate non-disclosure agreement, or NDA, a legal tool that has become more prominent, and controversial, lately.

Some context: NDAs have been an important part of corporate culture for years. Until recently, however, they were mainly used to ensure that former employees didn’t peddle trade secrets or reveal critical proprietary corporate information. In these situations, NDAs serve a very specific, reasonable purpose.

That said, NDAs are also regularly used to prevent potentially disparaging information from surfacing. However, this function is not necessarily nefarious, says David Brown, a partner with the Vancouver office of law firm Stikeman Elliott. “We use them a lot. We have non-disclosure and non-disparagement agreements in litigation settlements all the time,” he says.

Often, they’re used as the period on the end of a sentence: once a deal has been struck between two parties, it allows both to put the nastiness of the conflict behind them, without having to worry about the specifics burbling up in, say, a business magazine.

But for those who want to use NDAs as a sort of preemptive cudgel? Don’t depend on it. “It’s very unlikely that it would be enforceable,” says Brown, adding that, in this situation, there’s a solid basis to resist enforcement. “Courts have an overriding power to say that a contract is ‘unconscionable.’ Something like this, where you’ve got very unequal bargaining power and where you’ve got a purpose that’s contrary to normal public policy values, is likely to be unenforceable.”

Since there’s an obvious power disparity between the employer and the employee, any agreement would be evaluated in light of this. Beyond that, though, it has ‘backfire’ written all over it. “I think even a level up from that, it’s just a terrible idea. It’s the opposite of the old proposition that ‘sunlight is the best disinfectant,’” says Brown.

While attempting to preemptively muzzle your employees to avoid the fallout from future bad behavior is problematic, using an NDA to keep the details of a sexual harassment settlement under wraps could work—as long as both parties came to the table with legal representation, and made choices that didn’t put the victim at a significant disadvantage.

Even then, when one party decides to violate the NDA, the horse has basically bolted the barn. Case in point: before the 2016 U.S. presidential election, the lawyer for a certain disgraced former U.S. president allegedly paid a pornographic film star USD $130,000 to keep certain information from surfacing. But we all know how “the worst 90 seconds” of Stormy Daniel’s life, as she described it, turned out—as a guarantee of silence, this NDA failed.

Situations like the one above may not be long for the legal world. Prince Edward Island already has legislation on the books that prohibits the use of NDAs in sexual harassment, sexual assault or discrimination cases (unless initiated by the victim), and similar legislation is pending in Nova Scotia. (Hat tip to Stikeman articling student Paige Zambonelli.)

For the time being, though, it’s likely that some will continue to attempt to use NDAs as gags. The antidote? It may as simple as a Broadway show tune: Let the sunshine in.

Fictional scenario. Not intended as legal advice.