Do non-disclosure agreements hold up in court?

Non-disclosure agreements or NDAs are used to protect an organization’s confidential information and trade secrets. The story goes that the earliest NDAs were used by shipping companies to keep the trade routes to Malacca secret.  

NDAs have come a long way since then. Today, non-disclosure agreements are part and parcel of most employment contracts. According to the Federation of American Scientists, 33% to 57% of US workers are under some form of NDA. Based on these figures, there’s a good chance you’ll need help drafting an NDA. 

In this article, we’ll cover the basics of NDAs. We’ll answer the question: do non-disclosure agreements hold up in court?  

We’ll also go over some high-profile examples of cases where NDAs were broken and where they were challenged. They should serve as case studies for your company of what to do and what to avoid when handling NDAs. 

What is a non-disclosure agreement? 

A non-disclosure agreement (NDA) is a contract that protects confidential information shared between two groups: the disclosing party and the receiving party.  

The disclosing party shares information with the receiving party as part of a business deal or transaction such as: 

• mergers and acquisitions 
• business deals 
• employee onboarding (usually in tech, entertainment, or security roles) 
• product development or launch planning 
• client-contractor relationships 

There are two types of NDAs: 

1. Unilateral NDA – information flows one way: from the disclosing party to the receiving party. Only the receiving party signs the agreement  
2. Bilateral or mutual NDA – information flows both ways, and both parties sign the agreement 

For a more in-depth look at NDAs, read our explainer on non-disclosure agreements.  

How do non-disclosure agreements work? 

NDAs are contracts, which means they are legally binding. They should have the usual elements under contract law, such as: 

• offer – invitation to sign an NDA 
• acceptance – the act of signing the document 
• consideration – what the receiving party gets for keeping information safe (e.g. a job) 
• capacity – both parties must be of legal age and mentally capable to enter an agreement 
• legal purpose – the contract must be lawful 

Apart from these elements, an NDA must also be specific enough to hold up in court. We’ll get into more detail on that point later.   

Many industries use NDAs when hiring employees, dealing with contractors, or entering business deals. These contracts are used when individuals have access to sensitive information such as: 

• client lists 
• trade secrets 
• financial data 
• business plans 
• plans for the launch of a new product 

NDAs are commonly used in the tech, media, and entertainment industries. An NDA prevents employees from sharing sensitive information with others.  

Do NDAs hold up in court? 

In general, non-disclosure agreements will hold up in court if they: 

• are specific and well drafted 
• are signed by relevant parties 
• keep the information confidential 
• are used in a lawful way 

Let’s go over each of these points in more detail: 

The NDA should be specific and well drafted 

The NDA should not be too broad – it should provide enough detail for both parties, such as: 

• what information should be kept confidential 
• how long the information should be kept safe  
• what the penalties are for breach of contract 

NDAs should be detailed, but not too specific. In workplace NDAs, employees should not feel restricted in exercising their right to free expression or to form unions. An example is Meta’s confidentiality agreements, which the National Labor Relations Board (NLRB) found to be unlawful. 

The NDA should be signed by the relevant parties 

Just like any contract, a non-disclosure agreement holds up in court if it is signed by the relevant parties. That’s the receiving party for a unilateral NDA and both the disclosing and receiving parties for a bilateral NDA.  

A signature could be a physical or electronic signature. Under the ESIGN Act, electronic signatures are legal throughout the United States where federal laws apply. 

In cases where federal law doesn’t apply, the Uniform Electronic Transactions Act (UETA) is the prevailing law. The UETA also recognizes electronic signatures as valid.  

No one should be forced to sign a non-disclosure agreement. This could make the NDA unenforceable. 

While the disclosing party has no obligation to sign a unilateral NDA, they should still keep the stated information confidential. This leads us to our next point.  

The NDA should keep the information confidential 

For a non-disclosure agreement to hold up in court, the information it stated as confidential must remain as such. If the disclosing party shares that information with others, the validity of the NDA may be challenged.  

NDAs don’t apply to information that’s already in the public domain.  

The NDA must be used in a lawful way 

Non-disclosure agreements are not enforceable if they are used to cover up crimes or illegal activity. Most US states have rules on public policy. This means contracts can be voided if they cover up criminal activities or violate an individual’s right to speak up against illegal acts.  

Can you go to jail for breaking an NDA? 

Non-disclosure agreements are civil documents. Those who breach NDAs do not go to prison, unless the breach leads to a criminal act like stealing trade secrets.  

Breaking an NDA usually results in: 

• a fine 
• payment of damages 
• termination from their job 
• return of assets 

Let’s take a look at some cases where NDAs were breached and where they were challenged due to unlawful activity. We’ll see how the outcomes vary, depending on whether any criminal cases were linked to the violations.  

Case studies: NDA violations and ethical challenges 

In these examples, the NDA breaches resulted in criminal acts, leading to legal action. Both involve high-profile personalities in the security and tech spheres. 

The United States vs. Edward Snowden 

Edward Snowden was a former NSA contractor and CIA employee who leaked classified documents in 2013. These exposed surveillance programs by the National Security Agency around the world. He was charged with espionage for this act.  

In September 2019, Snowden published a memoir titled Permanent Record. At that point, the US filed a civil lawsuit against Snowden for violating the NDAs he had signed with the NSA and the CIA. According to the lawsuit, the NDAs required Snowden to submit a draft of the book for review before being published. Snowden did not do this, resulting in a breach of his NDAs. 

The following year, the courts ruled in favor of the US government. In the ruling, Snowden must pay the US government $5.2 million from royalties in book sales and earnings from 56 speeches.  

Key takeaway: Breaching an NDA could mean having to pay millions of dollars in restitution.  

Is there a difference between confidentiality agreements and NDAs? Find out in the article. 

Google vs. Anthony Levandowski  

Anthony Levandowski was one of Google’s star engineers who worked on its self-driving car. As part of his work, he signed an NDA not to take or share information related to the project. He was part of the team from 2009 to 2016. 

When he left Google in 2016, he downloaded over 14,000 Google files and used this information for his own startup.  

In 2019, the US District Attorney filed criminal charges against Levandowski: 33 counts of theft and attempted theft of trade secrets. To avoid a lengthy trial, Levandowski pleaded guilty to one count. The prosecution agreed to drop the other 32 charges.  

In 2020, Levandowski was sentenced to 18 months in prison. He was ordered to pay a fine of $95,000 and restitution worth almost $760,000 to Google. He did not start serving his sentence right away due to Covid-19, and he was pardoned by ex-President Trump in 2021.    

Key takeaway: When an NDA breach involves stealing trade secrets, that will lead to a criminal case with prison time and huge penalties. 

Zelda Perkins and the Harvey Weinstein case 

Non-disclosure agreements are standard practice in Hollywood. Multi-million productions and casting coups are protected by NDAs, and top producer Harvey Weinstein took advantage of this.  

In 1998, Weinstein made his assistants Zelda Perkins and Rowena Chiu sign NDAs to cover up his attempt to rape Chiu. Both women received GBP125,000 each for keeping quiet. 

Perkins broke her NDA in 2017, speaking with journalists about Weinstein’s behavior. This act inspired other women to come forward, which led to Weinstein being charged with multiple counts of rape and sexual assault. He was eventually convicted and has started his prison sentence. 

Perkins launched Can’t Buy My Silence with Canadian law professor Julie Macfarlane to stop using NDAs to cover up sexual abuse. 

Key takeaway: The NDA process was abused by Weinstein to mask his predatory behavior. NDAs do not hold up in court if they are used to cover up criminal acts like Weinstein did.  

Former Abercrombie & Fitch CEO allegedly used NDAs with models 

Federal prosecutors allege that former Abercrombie & Fitch CEO Mike Jeffries and his associates were involved in sex trafficking from 2008 to 2015. 

The indictment claims that Jeffries required the alleged victims to sign NDAs. This prevented them from speaking about their involvement, even with family or friends. This created a barrier to reporting criminal activity.  

Prosecutors argue that these NDAs were used unlawfully to silence victims.  

Key takeaway: NDAs cannot legally be enforced to cover up illegal activities like sex trafficking. Non-disclosure agreements used in this way will not hold up in court. 

How enforceable is a non-disclosure agreement? 

NDAs are enforceable and can be held up in court if they are clear, specific, and signed by the relevant parties. Non-disclosure agreements that don’t meet these criteria may be challenged in court.  

NDAs that go against public interest and cover up criminal activity are not enforceable.  

If one of your employees or contractors breached their NDAs, here’s what you should do: 

1. Identify the breach 

Document instances when the NDA was breached. This might look like: 

• confidential information shared with others 
• data leaked 
• trade secrets stolen or shared 

You may need to investigate. Look for evidence to confirm that a breach took place: 

• an email trail 
• witness statements 
• leaked documents 

It’s important to identify which part of the NDA was breached. This specific bit of information is vital when you move forward with any action.  

At this point, you may want to think about hiring legal counsel.  

2. Send cease and desist letter 

Send the violating party a cease and desist letter. This is a formal notice demanding that they stop the unlawful activity right away. The letter includes: 

• the specific breach 
• the relevant clause in the NDA it violates 
• deadline to comply 

A cease and desist letter helps avoid costly and time-consuming trials if the offending party follows the order.  

3. Seek an injunction 

An injunction orders the other party to stop sharing confidential information further. This can help prevent any more damage or losses. An injunction can take one of these forms: 

• Temporary restraining order (TRO): a quick, short-term order from the court to prevent the offender from sharing confidential information. A TRO only lasts a few days 
• Preliminary injunction: a longer-term court order, still to prevent the offender from causing further harm while the trial is underway 
• Lawsuit: formal legal action to resolve the dispute. This involves filing a complaint and asking the court to decide on the case 

Consult your lawyer to find out what approach to take at every stage of the case. 

4. Pursue damages 

This is an option especially if the breach resulted in lost income or damage to your company’s reputation. To establish financial losses, consider these factors: 

• reputational harm, including lost revenue 
• decreased market value due to the breach 
• loss of customers 

Depending on the scope of the breach, you may want to consult a team of professionals to help place a price tag on the damage. Your team might include: 

In seeking input from these experts, you can be confident that the amount you'll be seeking in damages is fair and proportionate.  

5. Consider alternative dispute resolution (ADR) 

Mediation and arbitration can help resolve the dispute while avoiding a time-consuming and expensive trial. These forms of alternative dispute resolution (ADR) are helpful especially if both parties are willing to negotiate.  

That sums up steps to take in enforcing an NDA. The process may vary, depending on which state the NDA is being applied in.  

If the NDA was drafted in one state and enforced in another, it’s best to consult lawyers in each of these states.  

Making non-disclosure agreements hold up in court 

Like any other contract, NDAs should be clear and specific. These should outline what information is confidential, what the penalties are for violating the agreement, and the time limits for keeping that information secret. Be clear on the intentions behind these NDAs. If they go against public interest or cover up criminal acts, they will not be upheld in court.  

Make sure your organization’s NDAs are iron clad. Be clear and thorough in your language. Consult a lawyer to guide you in drafting an NDA. They can advise you on what a good NDA looks like based on your organization’s needs.  

Do you know of other cases where non-disclosure agreements were not held up in court? Let us know in the comments below