In today’s business world, information is often more valuable than cash. That’s because certain information has the power to provide a competitive edge and positively impact the bottom line for years to come. So it’s not surprising that business owners want to protect that information with a nondisclosure agreement (NDA).
Having employees sign an NDA can go a long way toward keeping confidential information inside the company. But what if you suspect an employee has used private communications to share proprietary information with unauthorized parties? Does an NDA extend to confidential private messages? Two legal experts help answer this question below.
Does an NDA extend to confidential private messages?
“First, it depends a lot on the terms of the NDA,” says Ryan Reiffert, a business attorney based in San Antonio, Texas.
NDAs, like many other contracts, can contain a wide array of provisions. If the NDA stipulates that the employer has a right to access private communications and the employee willingly signs it, then the employer may be able to review private communications on demand — assuming no state law exists that supersedes the NDA’s terms.
Second, Reiffert recommends you look at the employment laws of your state. The NDA may not have any provisions that afford the employer on-demand review of private messages, but if you operate in an at-will employment state — meaning that, absent contractual provisions, an employer can terminate an employee at will and without cause — an employer can demand to see the communications.
“If the employee declines, the employer can simply terminate them,” Reiffert says.
Robert Odell, employment attorney and managing partner at Odell Law, says that there’s rarely a case where an employer has a legal right to inspect an employee’s private communications. Specifically, he references text messages since they are one of the most common methods of communication.
“The only exception would be if the texts are on a company-owned phone or device and the company has issued a privacy notice advising the employee that the phone communications are monitored and/or the company has the right to inspect them,” Odell explains.
Of course, the employer might simply request to review the texts under threat of termination, as Reiffert explained above. However, Odell notes that this act can form the basis of a wrongful termination claim if the employee refuses based on their right to privacy under some state laws.
“For example, the California and U.S. Constitutions grant all citizens a right to privacy that cannot be infringed upon except for limited circumstances that are justified by compelling interests and a careful legal balancing test,” Odell explains. “Employers can sometimes overcome those interests in limited circumstances that usually involve health and safety — for example, drug testing all new employees in the interest of workplace safety.”
Odell says an employer may argue that they have a “compelling interest in determining whether the NDA has been breached,” but he is not aware of any legal precedent supporting that argument as a legitimate basis to overcome an employee’s right to privacy. “I would argue that position does not [have a legal basis], as the interest is very narrow and only involves the company’s own peace of mind rather than a broader benefit to the workforce or the public.”
Considering a different perspective
Odell shares another common employment-related use case for NDAs: an employee signing the contract as part of a post-termination settlement or severance agreement. “In this case, the employer has zero right to inspect the former employee’s private communications, unless that is something the parties specifically agreed to in the terms of the NDA. But I’ve never seen that before.”
If someone notifies the employer that an employee or former employee has breached an NDA, or the employer suspects such a breach, the agreement itself usually spells out what the employer can do. Most commonly, the agreement will allow the employer to file an immediate injunction or other equitable relief to stop the breach from occurring.
The agreement may also allow the employer to recover liquidated damages to compensate for any harm the breach caused. This could be included in the NDA. “Many of the settlement agreements my clients have signed usually specify somewhere between $10,000 and $20,000 of liquidated damages for each breach that can be proven — though I have seen other NDAs that specify much more,” Odell explains.
NDAs are a great resource for protecting confidential information, but they have limits. Be sure you use a clearly defined NDA template to minimize the chance of an information leak by employees. It also helps to have legal assistance available should you need to take appropriate recourse against an employee who you think has violated an NDA.