Employee Confidentiality Provisions: Overbreadth Can Lead to Under-Protection
Confidentiality and non-disclosure provisions in employment agreements can be a meaningful measure to help companies protect valuable intellectual property, including trade secrets. Such provisions in employment agreements can also be important evidence of measures a trade secret owner employs to protect such important intellectual property. Conversely, the failure to have in place a non-disclosure agreement can create difficult hurdles in asserting a trade secrets claim later on. See, e.g., Mintz v. Mktg. Cohorts, LLC, No. 18-CV-4159, 2019 WL 3337896, at *6 (E.D.N.Y. July 25, 2019) (federal trade secrets misappropriation claim failed because plaintiff “did not require defendants to sign a non-disclosure agreement [or] any sort of covenant to protect” the alleged secrets); Mason v. AmTrust Fin. Servs., Inc., No. 19-CV-8364, 2020 WL 1330688, at *3 (S.D.N.Y. Mar. 23, 2020) (granting Rule 12(b)(6) motion on trade secrets claims where plaintiff did not require any written contract before handing the product in question over to the defendant for its use). However, in crafting confidentiality and non-disclosure provisions, employers should be careful to not draft such provisions too broadly, because overly broad and indefinite clauses may be subject to successful legal challenge by employees in response to an employer’s attempt to enforce such clauses.
In examining the enforceability of a restrictive covenant in an employment agreement, courts will typically evaluate whether the agreement balances the concerns of the employer, through reasonable and clear limitations, against an employee’s rights of free expression. To that end, courts have made clear that non-disclosure agreements do not per se violate public policy, but restrictive covenants, such as confidentiality agreements, are subject to specific enforcement to the extent that they are reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee. See Ashland Mgmt. Inc. v. Altair Invs. NA, LLC, 59 A.D.3d 97, 102 (1st Dep’t 2008), aff’d as modified, 14 N.Y.3d 774 (2010) (quoting BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 389 (1999) (quoting Reed, Roberts Assocs. v. Strauman, 40 N.Y.2d 303, 307 (1976))). The fundamental issue is “whether the employer has made ‘overreaching, coercive use of dominant bargaining power, or other anti-competitive conduct,’ or whether it ‘has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing.’” Marsh USA Inc. v. Schuhriemen, 183 F. Supp. 3d 529, 535 (S.D.N.Y. 2016) (quoting BDO Seidman).
Generally speaking, courts will scrutinize those restrictive provisions which are vague and do not give the employee reasonable notice as to what conduct may be prohibited under the contract. As one court put it: “Impenetrable vagueness and uncertainty will not do[,]” because “definiteness as to material matters is of the very essence in contract law.” Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 109 (1981). This is in part because enforceability requires “a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms.” In re Express Indus. & Terminal Corp. v. N.Y. State Dep’t of Transp., 93 N.Y.2d 584, 589 (1999) (citing Joseph Martin Jr., Delicatessen, Inc., 52 N.Y.2d at 109)). For that reason, voluminous confidentiality provisions which are practically unlimited in scope, and abstract as to the types of things considered to be “confidential” and thus protected, may be problematic. Broad categories of information covered by a non-disclosure provision, which in themselves may not be exhaustive, could conceivably cover information not related to the employer’s confidential information, and thus it may be difficult for an employee to know what speech and other communication she has agreed to forego (raising the contractual concern of mutual assent). Express Indus. & Terminal Corp., 93 N.Y.2d at 589. For example, the breadth of the non-disclosure provision may be problematic if an employee would have no way of knowing ex ante what speech or disclosures will result in enforcement.
Lastly, courts often decline to enforce restrictive covenants where the information at issue could not properly be considered confidential or a trade secret. See, e.g., H & R Recruiters, Inc. v. Kirkpatrick, 243 A.D.2d 680, 681 (2d Dep’t 1997); In re Am. Media, Inc., 8 Misc. 3d 1002(A), at *3 (N.Y. Sup. Ct. 2005). There is no liability for alleged breaches of confidentiality provisions or non-disclosure agreements where the “misappropriated” information is actually available from other sources. See Marsh USA, Inc. v. Alliant Ins. Servs., Inc., 49 Misc. 3d 1210(A), at *2-3 (N.Y. Sup. Ct. 2015) (finding confidentiality provision that encompassed “all ‘client information’ and ‘personnel information,’ categories that are much broader than is necessary to prevent the disclosure of trade secrets or confidential information,” was unenforceable even where the plaintiff alleged that defendants “e-mailed rolodex to themselves”). To that end, courts may be reluctant to enforce “catch-all” provisions which effectively bar the employee from applying any learned skills or industry knowledge and therefore create an undue burden. See In re Document Techs. Litig., No. 17-CV-2405, 2017 WL 2895945, at *10-11 (S.D.N.Y. July 6, 2017); see also ENV Servs., Inc. v. Alesia, 10 Misc. 3d 1054(A), at *4 (N.Y. Sup. Ct. 2005); Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303, 308 (1976).
Care should be given in drafting confidentiality and non-disclosure provisions in employment agreements so as to not make such provisions potentially self-defeating, with focus both on those particular things which are secret and of value to the employer, and in balancing the employer’s legitimate interests in maintaining the confidentiality of such material against the employee’s qualified rights of free expression and ability to reasonably earn a living.