Topic of the Week Non-disclosure agreements: What are they and what do you need to know about them?
If you are asked to sign an NDA look out for:
- Overbroad agreements
- Liquidated damage provisions
- Long time limits
- Arbitration provisions
- Differences between what you read and what you are told
Non-disclosure agreements: What are they and what do you need to know about them
NDAs are nothing new. Companies have been using these agreements for decades to keep trade secrets but are also used to keep workplace problems like sexual harassment under wraps. NDAs are often used to stop the victims from speaking out. They are included in settlement agreements and prohibit victims of sexual harassment or assault from publicly discussing the settlement and what happened to them. Many victims fear the legal action that may be taken against them if they violate the terms of their agreements.
What should I look out for in an NDA?
· Overbroad agreements. Be cautious of an overbroad agreement that seems to be less about protecting confidential company information and more about forcing employees to be silent about everything regarding the company.
· Liquidated damages provisions. Check for liquidated damages provisions which specify a cash amount an employee must pay per breach of an NDA. If the number is very high, it may create a dynamic where employees are terrified to come forward even about illegal company behavior because they are afraid of being sued. Courts may throw out a provision where the damages/penalties for violating the agreement are much greater than the harm caused to the company when the agreement is violated.
· Long time limits. Time limits that go on for your entire lifetime are overreaching and should raise a red flag. They may be considered reasonable by a court if they are for a shorter period of time, but that will vary by state.
· Arbitration provisions. Forced arbitration clauses or clauses requiring private and confidential arbitration rather than in a public court of law. While those clauses may be legal to include, you should be aware of what they mean.
If what you are told is different from what you see in the written agreement, you need to clarify before signing because the written agreement is binding. Additionally, if the NDA prevents you from bringing discrimination or harassment claims to the proper authority than the NDA is unenforceable.
Are there negative tax consequences under the new law for victims of sexual harassment who have signed an NDA?
Section162(q) of the new tax bill was originally intended to stop businesses/employers from being able to deduct sexual misconduct settlements conditioned on NDAs, however it currently states, “no deduction shall be allowed under this chapter for—(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a non-disclosure agreement, or (2) attorneys’ fees related to such a settlement or payment.”
Some have interpreted this statute to apply to both businesses and individuals. Therefore, under this language of this statute, victims of workplace sexual assault or harassment who settle their claims subject to an NDA, would be prohibited from deducting the portion of their settlement allocated for attorney’s fees, and would have to pay taxes on the entire amount they were given for the settlement.
As a result of this uncertainty, Sen. Robert Menendez has announced plans to introduce legislation clarifying that §162(q) is meant to apply only to businesses/employers. In the meantime, you should consult with a tax attorney or accountant knowledgeable in this area to determine what amounts of your settlement payment are deductible.
Don’t be caught off guard by an NDA from your employer. Educate yourself about what it is and what it means for you. Every agreement is different, if you have signed, or are being asked to sign and NDA, consult with an attorney in your area to find out what your rights are.