[conspire] Re: Usage of NDAs in legal flummery

Rick Moen rick at linuxmafia.com
Sun Dec 18 21:27:36 PST 2005

I wrote (in my draft letter, that I ended up not sending):

> There was, however, one thing you said that concerned me:  You asserted
> that a non-disclosure agreement I signed 2 1/2 years ago is still in
> force, and would apply to our telephone conversation that followed.

Follow-up discussion of this micro-thread occurred during Saturday's
SVLUG installfest.  Some folks wanted to know (roughly speaking) if NDAs
you sign are, generally, enforceable.  One attendee wanted to know if
NDAs required by an employer automatically _expire_ when you leave a firm.

Yes, they're as a general rule enforceable.  _No_, there's nothing
requiring that employment-related NDAs expire when you leave a firm.

Mandatory disclaimer:  Again, I'm not an attorney, and so it's illegal
for me to give people specific legal advice on their specific situations.  
So, I am not doing so:  If you need legal advice about some situation
you're in, _please_ consult an attorney.  (An initial consult isn't even
very expensive.)

Let's take that latter question first, since it's a really important
point:  Employers' NDAs, especially for those of us in the technology
field, are in fact _particularly_ aimed at dissuading people who've just
left employment from blabbing proprietary information.  On the other
hand, it's a fast-moving world, and, y'know, secrets just don't keep.
Any employer who imagines there's any legitimate point in keeping
apron-strings on ex-employees for more than, oh, six months is either
deluded, a power-mad freak, or is in some very unusual line of business
(e.g., you're agreeing to have custody of the secret formula for
Coca-Cola, or are becoming a spy for the CIA).  So:

  Suggestion #0:  Be damned careful what you sign.

  Suggestion #1:  Verify, _before_ you sign it, that any NDA, non-compete
  agreement, or proprietary inventions agreement has a sunset clause making 
  it expire no more than six months after your business relationship ends.  
  If it's missing, propose adding one.  If you don't hear a _really good_ 
  reason why it shouldn't be added, say no and walk away.

Over the weekend, I've been trying to remember things I've signed in the
past, including NDAs, non-compete clauses, and proprietary invention
agrements at a couple of dot-coms I worked for during the boom.  The
dot-coms required agreements of all employees that I knew from my own
legal research to be mostly bogus and unenforceable.  The CEO of one of
them explained to me that this was an iron-clad requirement imposed by
the VCs, and I do believe him.  I signed -- including the laughably
fraudulent paper that toothlessly claimed the firm would own everything
I did, even when I did it at home on my own time.

When I told a group of fellow dot-commers about that bogosity, they
doubted my word.  I posted:

--<begin snip>---

Here's the reference on proprietary inventions agreements, covered in
California by Labor Code section 2870-2872 (i.e., by statute law):


In brief:  Regardless of what anything you sign purports to establish to
the contrary, whatever you create entirely on your own time with your
own resources is YOURS.  Caveat:  The burden of proof that you meet
those conditions is on you.

Here are references on non-compete clauses, covered in California by
Business and Professions Code section 16600 (another body of statute


In brief:  No employment-related covenant not to compete can shut you
out of your trade or profession, regardless of what you signed (except
where you owned the business that "employed" you and are now selling it,
or are dissolving a partnership and making such an agreement with your
fellow partners).  Those covenants are legally void.

[RM adds, 2005-12-18:  Note that that's in _California_.  In some other
states, e.g., Vermont, there are horror stories of people being legally
barred from their own professions for _years_ after leaving one employer,
because of a non-compete agreement.]

It would be nicely subtle -- polite but clear -- to hand in a printout
of the applicable statute to HR Dept. attached to your signed
non-compete and proprietary-inventions agreements, upon being hired.
For one thing, it's likely that most managers are unaware that such
instruments are toothless.

---<end snip>---

It is also a Federal offence for employers to sanction employees for
_comparing salaries_, per the National Labor Relations Act,
This comes as a surprise to almost everyone I inform about it, since
just about every employer I've ever encountered will tell you with a
straight face that it's a "termination offence" to discuss compensation
with your peers.  In their defence, the managers I've heard that from
believe it to be a fundamental right of employers, and are apparently
ignorant of the law.

(I am _not_ saying it's necessarily a good idea to carry out such
activity, merely that firms' prohibility of it is conclusively illegal
and can be themselves reversed and sanctioned by filings with the NLRB,
if such is ever necessary.)

Getting back to suggestions #0 and 1:  Employers have a legitimate
reason to be concerned about you quitting (or getting laid off) and
taking your knowledge down the street to their competitors.  California
law mostly (with a carve-out for "trade secrets" in a few narrowly
prescribed areas) says "Tough.  Live with it."  I.e., unlike the case in
Vermont and many other states, any agreement that tries to retrain you
from your trade or business is specifically _void_ by California law.

NDAs try to operate against that statute (Business and Professions Code
§16600), and it's apparently a tricky area of employment law for that
reason.  But you should assume they're for real:  Read them carefully; 
if they don't expire automatically (by specific terms to that effect) 
some reasonable time after you leave employment, that really should be
a deal-breaker, in my view.  You're not a serf; you shouldn't have to
sign documents proclaiming yourself one.  Ink in a six-month expiration
clause, and don't sign without it.

A couple of years ago, a former co-worker approached me, wanting to talk
about his idea for a Linux-oriented business.  It would involve a couple
of book-writing contracts, and a lucrative consulting business that
would emerge from the books and lectures.  He was eager to talk over
particulars with me -- but said he could not safely do so until I'd
signed his NDA.

I looked over the NDA.  It stipulated that there was a business
opportunity that would be discussed with me that was deemed valuable
proprietary information.  In signing it, I would agree that I would not
disclose his idea to others outside my business relationship with him,
and that I would not myself try to exploit the business opportunity on
my own.  In the event that I didn't pursue the opportunity, the NDA (and
non-compete) _did_ have a six-month time-out.

I was a little wary, so I stopped and talked with him:  I pointed out
that I operated a largely Linux/BSD-oriented consultancy, and did a
variety of work for small and medium-sized businesses.  I described
several of my recent client engagements, including one that involved
migrating an accounting system over to Linux.  I stressed that I'd be
extremely annoyed if his "business opportunity" turned out to be
something I was already doing, and that his non-compete had bloody well
better not try to bar me from any part of my own business.

I signed.  He then told me about his brainstorm:  Write a couple of
books describing in technical fine detail how to migrate firms over from
MS-Windows business applications to Linux ones.  His idea of the
division of labour was:  I wrote the books, with the two of us listed as
co-authors.  He and I then would split the profits from resulting
consulting opportunities on an, oh, 70/30 basis or something like that.

You guys would have been proud of me:  I didn't commit homicide, no
limbs were cut off.  I very politely declined the "business opportunity", 
wished him the very best of luck, and reminded him that a lot of my
ongoing business was in _precisely_ that area.  

Six months later, the agreement expired, and no harm came of it, but it
occurred to me in retrospect that I should have insisted on attaching to
the NDA/non-compete a list of the sorts of activities that were already
part of my business, and a statement that none of those, or anything
naturally emerging from those, should be considered a violation of the
agreement.  (I'd forgotten about Business and Professions Code
§16600, at the time.)

So, what I'm saying is, here I'm a pretty careful guy in legal matters,
and yet even I didn't heed Suggestion #0 quite well enough.  Do be
careful out there.

About NDA enforceability:  As I was saying, yes, NDAs in general _are_
enforceable as contracts.  If you try to ignore one, you can be hauled
into civil court on for the tort of breach of contract, and either
forced to pay damages (a remedy at law) or be subject to an injunction
(a remedy at equity).  

As I was saying in my earlier message, the NDA that $EXECUTIVE claims I
signed 2 1/2 years ago would have been unenforceable for lack of one of
the required elements for any contract to be valid:  "consideration".  
$FIRM could have said "We'll give you $1 for signing this NDA", and that
would have been enough -- but $FIRM hadn't done bupkes for me, as it
turned out.  (And, by the way, there is California caselaw clarifying
that it's not "consideration" to tell an employee "Sign this and we'll
let you keep your job."  There would have to be something additional 
given to the employee in exchange.)

If the contract _had_ been validly formed, then the law _in general_
doesn't interfere.  The assumption is that, if you're a competent adult,
any foolish commitments you enter into, in a contract, are your own
damned problem.   (California exceptions include the aforementioned ban on
contracts locking you out of your own profession, and Labor Code section
2870-2872's voiding of overreaching proprietary inventions agreements.)

So, beware:  The law will not in general protect you against being bound
by something ill-advised that you signed in a hurry.  Take NDAs and
other such things home to read them at your leisure.  If there's
anything that raises your eyebrow, or anything missing, make sure you 
cover it and settle the matter _in writing_ (not like me merely
_talking_ about problems with the ex-colleague).

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