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Employment law

NDAs (nondisclosure agreements)

Nondisclosure agreements—also known as NDAs or confidentiality agreements—are legally enforceable contracts that obligate the parties to the agreement to keep information shared in the course of the parties’ relationship confidential—and not to use it for any other purpose or disclose it to any other person or entity not authorized to receive the information. Nondisclosure agreements are used in a variety of business, employment, and work relationships, including between employers and employees and companies and independent contractors.

Nondisclosure agreements typically include a definition of what constitutes confidential information under the agreement and may be limited to a period of time—usually a number of years—in which confidential information shared between the parties cannot be used or disclosed. Nondisclosure agreements also usually include a provision stating that one or both parties agree that if one party violates the agreement the other party would not have an adequate remedy at law—meaning money damages awarded by a judge or jury would not adequately compensate the party whose confidential information was disclosed—and a court may enter an injunction ordering the party who improperly disclosed the confidential information not to do so again, or face additional penalties (civil and criminal contempt of court) for violating the court’s order.

Because nondisclosure agreements are contracts they are generally governed by state contract law, and which state’s law applies is determined by whether the parties agreed to the applicable law in the NDA (a choice-of-law provision), where the parties are located, or where property or places important to the relationship are located—such as real estate, personal property, intellectual property, corporate headquarters, or place of work—or other relevant facts and circumstances.

In Texas, nondisclosure agreements (NDAs), also known as confidentiality agreements, are recognized as legally binding contracts that require parties to maintain the confidentiality of shared information and restrict its use to the agreed purposes. These agreements are commonly used in business and employment contexts, including relationships between employers and employees, as well as between companies and independent contractors. Texas NDAs typically define what is considered confidential information and often include a duration for the confidentiality obligation. They may also contain provisions for injunctive relief, acknowledging that monetary damages may not be sufficient if the agreement is breached, and allowing courts to issue orders to prevent further unauthorized disclosure, with potential civil or criminal penalties for non-compliance. The enforceability of NDAs in Texas is governed by state contract law, and the applicable law can be determined by a choice-of-law provision within the agreement, the location of the parties, or the location of relevant property or business activities. It is important for parties entering into an NDA in Texas to ensure that the terms are clear, reasonable, and comply with applicable state laws to ensure enforceability.

Texas Statutes & Rules

Texas Business and Commerce Code, Section 15.50(a) - Covenants Not to Compete
This statute is relevant because it outlines the enforceability of covenants not to compete, which can include nondisclosure agreements in the employment context.

Under Texas law, a covenant not to compete, which can be a component of an NDA, is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made. The covenant must contain limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than necessary to protect the goodwill or other business interests of the promisee.

Texas Business and Commerce Code, Section 15.51 - Civil Action; Damages
This statute is relevant as it provides the remedies available when a covenant not to compete, which may be part of an NDA, is breached.

If a covenant not to compete is breached, the promisee is entitled to obtain injunctive relief to prevent the breach and may also seek damages. The court may award actual damages, lost profits, and potentially exemplary damages if the breach was willful and malicious. Additionally, the court may award attorneys' fees to the prevailing party.

Texas Civil Practice and Remedies Code, Section 134A.003 - Misappropriation of Trade Secrets
This statute is relevant because NDAs often protect trade secrets, and this code provides the legal framework for trade secret misappropriation in Texas.

The Texas Uniform Trade Secrets Act (TUTSA) allows for injunctive relief to prevent actual or threatened misappropriation of trade secrets. If a trade secret is disclosed or used in violation of an NDA, the injured party may seek damages for the actual loss caused by the misappropriation and for any unjust enrichment not captured in the actual loss. If willful and malicious misappropriation exists, exemplary damages may be available.

Texas Business and Commerce Code, Section 26.02 - Certain Agreements Must Be in Writing
This statute is relevant because it specifies the types of agreements that must be in writing to be enforceable, which can include NDAs.

According to the Texas Statute of Frauds, certain agreements must be in writing and signed by the person to be charged with the agreement or by someone lawfully authorized to sign for them. This includes any agreement which is not to be performed within one year from the date of making the agreement. NDAs that extend beyond one year would typically need to be in writing to be enforceable under this statute.

Texas Civil Practice and Remedies Code, Section 16.051 - Four-Year Limitations Period
This statute is relevant because it sets the general statute of limitations for breach of contract actions in Texas, which would apply to breaches of NDAs.

In Texas, a person must bring suit for breach of contract not later than four years after the day the cause of action accrues. This limitations period applies to NDAs, meaning that any legal action to enforce the agreement or seek damages for its breach must be initiated within four years from the date of the breach.

Federal Statutes & Rules

Defend Trade Secrets Act of 2016 (DTSA) - 18 U.S.C. § 1836
The DTSA provides a federal cause of action for the misappropriation of trade secrets, which can be relevant to NDAs when they are used to protect trade secrets.

The Defend Trade Secrets Act allows an owner of a trade secret that is misappropriated to bring a civil action in federal court. Misappropriation includes disclosure or use of a trade secret of another without express or implied consent. The DTSA also allows for an ex parte application for seizure of property necessary to prevent the propagation or dissemination of the trade secret. Remedies under the DTSA include damages, injunctive relief, and if the trade secret is willfully and maliciously misappropriated, exemplary damages and attorney's fees. The DTSA does not preempt state law, allowing plaintiffs to bring claims under both federal and state laws. It also requires that any agreement that governs the use of a trade secret or other confidential information entered into or updated after the enactment of the DTSA includes a notice of immunity for whistleblowers.

Economic Espionage Act of 1996 - 18 U.S.C. § 1831-1839
The Economic Espionage Act addresses the theft or misappropriation of trade secrets and can intersect with NDAs that are designed to protect such information.

The Economic Espionage Act makes it a federal crime to steal or misappropriate trade secrets with the intent or knowledge that the offense will benefit a foreign government, instrumentality, or agent. The Act also criminalizes the theft of trade secrets related to or included in a product that is produced for or placed in interstate or foreign commerce, with the intent to convert the trade secret to the economic benefit of anyone other than the owner. Penalties for violation can include fines and imprisonment. The Act also allows for civil proceedings to enjoin any violation. While the Act itself does not create a private civil cause of action, it establishes criminal penalties that can serve as a deterrent to the breach of NDAs involving trade secrets.

Computer Fraud and Abuse Act (CFAA) - 18 U.S.C. § 1030
The CFAA can be relevant to NDAs when the confidential information protected by the agreement is stored electronically and accessed without authorization.

The Computer Fraud and Abuse Act prohibits unauthorized access or exceeding authorized access to a protected computer to obtain information. It also covers the transmission of a program, information, code, or command that causes damage to a protected computer. Violations of the CFAA can result in criminal penalties, including fines and imprisonment, as well as civil actions for compensatory damages and injunctive relief. The CFAA is often invoked in cases where an individual has accessed computer systems to misappropriate confidential information in violation of an NDA.

Uniform Trade Secrets Act (UTSA) - Adopted by various states
While not a federal statute, the UTSA has been adopted in some form by most states and provides a framework for the protection of trade secrets, which can be relevant to NDAs.

The Uniform Trade Secrets Act provides a legal framework for the protection of trade secrets from misappropriation. It defines trade secrets and misappropriation, and it sets out remedies including injunctive relief, damages, and in cases of willful and malicious misappropriation, attorney's fees. The UTSA has been adopted in various forms by the majority of U.S. states, which means that while it is not a federal law, it provides a consistent approach to trade secret protection across state lines. NDAs that are designed to protect trade secrets may be enforced under the provisions of the UTSA in states that have adopted it.