Yes, non-disclosure agreements are legal in the United States, and courts enforce them every day. But an NDA is a contract, not a magic silencing device, and it holds up only when it satisfies ordinary contract rules and stays inside the limits federal law places on what any private agreement can restrict. Several categories of speech, including reports to federal agencies and pre-dispute claims about sexual harassment, sit outside what an NDA can legally cover, no matter what the document says.
When an NDA Is a Valid Contract
An NDA has to meet the same formation requirements as any other binding agreement. There must be mutual assent, meaning the parties clearly agree to the terms through an offer and acceptance.1Cornell Law Institute. Mutual Assent Every signer must have legal capacity: old enough and mentally competent to understand what they are agreeing to. A minor’s signature is generally voidable.
The requirement that trips people up most often is consideration, the exchange of something valuable between the parties. When an NDA is signed at the start of a new job, the job itself is the consideration. When it comes with a business deal, access to proprietary information or a payment usually does the work. If someone signs and gets nothing in return, the agreement can be challenged as illusory.
Mid-Employment NDAs and the Consideration Split
Things get complicated when an employer asks an existing employee to sign a new NDA months or years into the job. Roughly half of states, including New York, Florida, and Ohio, treat continued at-will employment as enough. A significant minority, including Texas, California, Oregon, and Washington, require something more, such as a bonus, stock options, or a raise. If you are handed an NDA after you have already been working somewhere for a while, whether it holds up may turn entirely on which state you are in and whether your employer offered anything beyond letting you keep the job.
What an NDA Cannot Legally Cover
Federal law places hard limits on what an NDA can restrict, and contract language that tries to work around those limits is void.
Sexual Harassment and Assault Claims
The Speak Out Act, signed into law in December 2022, makes pre-dispute non-disclosure clauses unenforceable when they cover sexual harassment or sexual assault claims.2Office of the Law Revision Counsel. 42 USC 19403 – Limitation on Judicial Enforceability of Nondisclosure and Nondisparagement Contract Clauses Relating to Sexual Assault Disputes and Sexual Harassment Disputes The key word is “pre-dispute.” An NDA signed before any incident occurs cannot later be used to prevent someone from speaking about harassment or assault they experienced. NDAs negotiated after a dispute arises, such as those in settlement agreements, remain allowed when the person agrees voluntarily. The statute still permits protection of trade secrets and proprietary information in these contexts.
Reports to Federal Agencies
No NDA can stop you from reporting potential legal violations to a federal agency. Rule 21F-17 under the Securities Exchange Act bars any person from impeding someone from communicating with SEC staff about a possible securities violation, including by enforcing or threatening to enforce a confidentiality agreement.3eCFR. 17 CFR 240.21F-17 – Staff Communications With Individuals Reporting Possible Securities Law Violations The SEC has enforced this aggressively. In 2024, seven public companies paid a combined total of more than $3 million in civil penalties for using contract language that impeded whistleblower communications.4U.S. Securities and Exchange Commission. SEC Charges Seven Public Companies with Violations of Whistleblower Protection Rule
Similar protections extend elsewhere. The Taxpayer First Act shields disclosures to the IRS about potential tax violations. The Defend Trade Secrets Act goes further and grants immunity from civil and criminal liability for anyone who discloses a trade secret in confidence to a government official or attorney for the purpose of reporting a suspected violation of law.5Office of the Law Revision Counsel. 18 US Code 1833 – Exceptions to Prohibitions An NDA that tries to override any of these protections will not hold up.
Talking to Coworkers About Work
The National Labor Relations Board ruled in its 2023 McLaren Macomb decision that employers cannot offer severance agreements requiring non-supervisory employees to broadly waive their rights under the National Labor Relations Act.6National Labor Relations Board. Board Rules that Employers May Not Offer Severance Agreements Requiring Employees to Broadly Waive Labor Law Rights Section 7 of the NLRA protects employees’ rights to discuss wages, working conditions, and other terms of employment with coworkers. An NDA or non-disparagement clause broad enough to chill those conversations violates the law, and simply offering such an agreement is itself an unfair labor practice, even if the employee never signs.
General Skills and Public Information
Courts consistently distinguish between protectable trade secrets and the general expertise someone builds over a career. If an NDA tries to classify basic industry knowledge, professional skills, or publicly available information as confidential, courts typically strike those provisions. An NDA that sweeps so broadly it effectively prevents someone from working in their field may be treated as a disguised non-compete rather than a legitimate confidentiality agreement. The now-vacated FTC non-compete rule flagged exactly this concern, noting that an NDA covering information “usable in” or “relating to” an entire industry could function as a prohibited restraint on future employment.7Federal Trade Commission. Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule The rule was vacated in 2025, but the underlying principle stands: courts can and do refuse to enforce NDAs that are really non-competes wearing different clothes.
How Courts Evaluate Duration and Scope
Even a properly formed NDA can be struck down if its restrictions go too far. Courts apply a reasonableness test, weighing the legitimate need for protection against the burden the restrictions place on the signer.
Duration is the most straightforward factor. An NDA demanding permanent confidentiality faces skepticism unless the information qualifies as a lasting trade secret, such as a proprietary formula or algorithm with indefinite commercial value. For most business information, courts are more comfortable with terms in the range of two to five years. Customer lists go stale. Market strategies evolve. Pricing data becomes irrelevant. A confidentiality period should roughly match how long the information keeps its competitive value.
Scope matters just as much. The agreement needs to define what counts as confidential with enough specificity that the signer understands their obligations. Vague language covering “all information learned during employment” invites challenge. The stronger approach identifies categories, such as client data, product development plans, and financial projections, rather than trying to capture everything.
What Happens When a Provision Is Overbroad
When a court finds a provision too broad, what happens next depends on the state. Roughly 28 states follow a reformation approach, where the judge rewrites the overbroad provision to something reasonable and enforces the modified version. About seven states use a strict “blue pencil” approach, where the court can cross out unreasonable language but only if the remaining text still reads sensibly without any rewriting. A small number of states, including Virginia and Wisconsin, take an all-or-nothing view: if any restrictive provision is unreasonable, the entire agreement fails. Drafting an intentionally overbroad NDA and hoping a court will trim it is a risky play, and some judges in reformation states will refuse to rewrite terms that suggest deliberate overreaching.
When Courts Refuse to Enforce on Fairness Grounds
An NDA can satisfy every technical requirement and still be thrown out as unconscionable. Courts look at both how the agreement was formed and what it actually says.
Procedural unconscionability focuses on the circumstances of signing. The classic scenario is a take-it-or-leave-it document handed to someone with no bargaining power, no time to consult a lawyer, and an implicit threat that refusing means losing the job.8Cornell Law School Legal Information Institute (LII). Unconscionability The greater the power imbalance, the more scrutiny a court applies to the terms.
Substantive unconscionability looks at the terms themselves. Clauses that impose massive financial penalties for accidental or trivial disclosures, or restrictions with no relationship to any legitimate business interest, can render the agreement unenforceable. Courts do not require perfect symmetry, but they will intervene when terms are so lopsided that enforcement would be fundamentally unfair. Most successful challenges combine both problems: an oppressive process that produced oppressive terms.
What Happens When Someone Breaches an NDA
The consequences of a breach depend on what the agreement says and what kind of information was disclosed. Remedies fall into three main categories.
- Injunctive relief. A court can issue an emergency order stopping the breach. Getting one generally requires showing irreparable harm, meaning damage money alone cannot fix, and a likelihood of winning the underlying case. Courts can also order the return or destruction of confidential materials.9Office of the Law Revision Counsel. 18 US Code 1836 – Civil Proceedings
- Monetary damages. The injured party can recover actual losses plus any unjust enrichment the violator gained. Where those figures are hard to pin down, a court may award damages based on a reasonable royalty for the unauthorized use of the information.9Office of the Law Revision Counsel. 18 US Code 1836 – Civil Proceedings
- Exemplary damages and attorney’s fees. If the misappropriation was willful and malicious, courts can award exemplary damages up to double the compensatory amount, plus reasonable attorney’s fees for the prevailing party.9Office of the Law Revision Counsel. 18 US Code 1836 – Civil Proceedings
Many NDAs also include liquidated damages clauses, pre-set dollar amounts the parties agree to in advance as the penalty for breach. These are enforceable as long as the amount is a reasonable estimate of the likely harm. Courts strike down liquidated damages that function as punishments rather than approximations of actual loss.
One boundary is worth flagging: injunctions under the Defend Trade Secrets Act cannot prevent someone from taking a new job. A court can restrict how confidential information is used in a new role, but it cannot bar the person from working.9Office of the Law Revision Counsel. 18 US Code 1836 – Civil Proceedings
The DTSA Notice Employers Often Forget
The Defend Trade Secrets Act requires employers to include a specific notice in any contract or agreement that governs trade secrets or confidential information. The notice must inform the employee that federal law provides immunity for confidential disclosures made to government officials or attorneys for the purpose of reporting suspected legal violations.5Office of the Law Revision Counsel. 18 US Code 1833 – Exceptions to Prohibitions Employers can either include the notice directly or cross-reference a separate company policy document.
Skip the notice and the penalty is practical rather than punitive: the employer cannot recover exemplary damages or attorney’s fees if it later sues the employee for trade secret misappropriation.5Office of the Law Revision Counsel. 18 US Code 1833 – Exceptions to Prohibitions That is a serious disadvantage in litigation, since exemplary damages under the DTSA can reach up to double the actual award.9Office of the Law Revision Counsel. 18 US Code 1836 – Civil Proceedings
Tax Consequences of NDA Settlements
If you receive money in an NDA-related settlement, how it is taxed depends on what the payment replaces. The general rule under the Internal Revenue Code is that all income is taxable unless a specific exemption applies. Payments for personal physical injuries or physical sickness can be excluded from gross income. Payments for emotional distress, lost wages, discrimination, or defamation are generally taxable.10Internal Revenue Service. Tax Implications of Settlements and Judgments
On the employer side, there is a separate trap. Under IRC Section 162(q), businesses cannot deduct settlement payments or related attorney’s fees for sexual harassment or sexual abuse claims if the settlement is subject to a nondisclosure agreement.11Internal Revenue Service. Certain Payments Related to Sexual Harassment and Sexual Abuse Requiring confidentiality on a harassment settlement costs the company its tax deduction. The recipient can still deduct their own attorney’s fees if they would otherwise be deductible. That provision has pushed some employers to reconsider whether insisting on an NDA in harassment cases is worth the added tax cost.