NDA Overuse Can Lead to Serial Misbehavior, Embarrassing Reveals

If you’re an in-house lawyer, I think you’re keeping secrets. And that might be putting your company at risk.

Lawyers love secrets. They quietly handle investigations of employee misconduct. They protect trade secrets, champion privacy, push for data security, and fight insider trading. They run closed door board meetings. They’re in offsite war rooms working on confidential mergers and acquisitions.

Don’t forget to mark that document “confidential, attorney client privileged.” When you think about it, the entire profession is grounded in the attorney client privilege, a promise of secrecy so sacred that even a grand jury subpoena can’t unlock it. For a lawyer, secrecy is good for business.

But you might love secrecy too much when it comes to the most common legal tool in the world—the non-disclosure agreement. Employees at all levels across many industries are expected to sign an NDA as a condition of employment; as many as a third of all employees are estimated to be bound by some form of employment NDA when they start work.

Try to go to a meeting at someone’s office, but don’t be surprised if a smiling receptionist hands you a tablet with an NDA to sign before you get through the inner doors—can’t have you posting pictures of what you might see on conference room walls. Want to date a celebrity? You might have to sign an NDA on the first date—Jack Harlow even raps about it on his song “21C/Delta.” Let’s just get this notarized, and then I’ll order the coffee.

NDAs are a useful tool when used to protect confidential information. But when they’re routinely used as part of your settlement agreements to silence employees and customers and cover up negligence, bad behavior, or criminal conduct, you’re playing with fire. It’s a lose-lose situation.

If the NDA requires silence, it enables the perpetrator to continue to engage in the same behavior. If an individual ultimately decides to break the NDA and speak out, they risk a lawsuit. Meanwhile, the company now faces the double whammy of dealing with the exposure for the original bad behavior and the tawdriness of trying to cover it up with an NDA. The cover up, as they say, is worse than the crime.

In the wake of Harvey Weinstein, Bill Cosby, Roger Ailes, Matt Lauer, and many more, Congress passed the Speak Out Act banning NDAs in cases involving sexual assault and harassment. But that hasn’t stopped in-house lawyers from blindly insisting on NDAs in other cases involving their employees and consumers, from serious cases involving race or gender discrimination, to the most routine customer disputes.

Take the airline industry. If you have a bad experience regarding a flight with a major North American carrier and end up negotiating some form of compensation (such as miles) for your trouble, you may have to sign a notarized settlement agreement barring you from ever speaking about the incident or making a critical remark about the airline to anyone, ever again.

If you posted on social media about your experience, at least one major carrier requires that you delete all of your statements about the matter, specifically including social media posts about the experience, statements to regulatory authorities, even emails, as a condition of getting your compensation. The criticism just vanishes, like the problem never happened.

Kudos to the legal department, right? Well, at least until a regulatory agency finds out that consumers are required to sign NDAs and withdraw their statements to get compensated. I can only imagine how the Federal Trade Commission might react—it has already taken an aggressive posture toward phony positive online reviews and failures of influencers to disclose that they are compensated for their glowing product reviews.

If a business is bullying consumers into removing honest online product and service reviews as a condition to receiving fair compensation, and thus depriving other consumers of honest critical reviews about the business’s services, it won’t end well.

The consequences of overusing NDAs might be worse than underusing them. In an era where AI might be writing your contracts and mindlessly inserting non-disclosure clauses, you may be overextending and (ironically) putting your company in the embarrassing position of covering up things that shouldn’t be covered up, all for an NDA that you probably wouldn’t go to court to enforce anyway.

It’s time to review all of the NDAs you use in settlement documents, and ask whether they protect you, or put you in harm’s way. I think transparency is often the better course—let people speak their truth, note that you occasionally make mistakes and aren’t afraid to let them be aired and fairly resolved, and remember that getting a little public criticism will usually make you better.

When you hide mistakes, you’re more likely to make the same ones over and over. And coverups have a way of getting out from under the covers.

Rob Chesnut consults on legal and ethical issues and was formerly general counsel and chief ethics officer at Airbnb. He spent more than a decade as a Justice Department prosecutor.

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