New NDA Laws Require A Customized Contract Approach

Different State Laws Regarding NDAs and Other Agreements Require a Customized Approach to Contract Management

Commercial contracts are the lifeblood of every business. As a result, the task of reviewing, negotiating, and approving commercial contracts is an important responsibility of every corporate legal department. But, of course, it’s not the only responsibility. And the immense volume of commercial contracts many companies have to deal with can often impede in-house lawyers from focusing on other critical initiatives that require their time and attention.

It would be one thing if the various contract types that made their way through a legal department were more or less standardized. However, not only do legal departments need to grapple with non-disclosure agreements, licensing agreements, master service agreements, procurement contracts, real estate agreements, statements of work, and other miscellaneous contracts, in many cases each of these contracts need to be adjusted based on factors such as what state law applies to the contract. For a financial institution, insurance company, telecommunications company, or other large, multistate employer, this becomes a big challenge, because many states have many different rules when it comes to particular types of contracts.

Take non-disclosure and/or non-disparagement agreements (“NDAs”), for example, which many employers require employees to sign during a hiring process, as well as upon the severance of employment, and/or in connection with a legal settlement. Maine, Oregon, California, Illinois, New Jersey and New York, as well as other states, have laws in place that restrict how employers can use NDAs.

From a contract management standpoint, one of the biggest complications is that state laws vary in their scope. For instance, Maine bans NDAs that:

Restrict employees' right to report, testify, or provide evidence to a federal or state agency that enforces employment or discrimination laws.
Prevent employees from testifying or providing evidence in federal or state court.
Prohibit employees from reporting illegal conduct to a law enforcement agency.

Washington’s “Silenced No More Act,” prevents employers from requiring or requesting that workers sign NDAs that restrict rights to discuss illegal discrimination, harassment, sexual assault, retaliation, wage and hour violations, or any other violations of public policy. The federal government also recently got into the mix with the passage of the “Speak Out Act” which took effect on December 7, 2022. It renders unenforceable NDA clauses related to allegations of sexual assault and/or sexual harassment and that are entered into “before the dispute arises.” Under the new law, it’s likely that an employer can include enforceable non-disclosure and non-disparagement clauses in agreements resolving allegations of sexual harassment or assault, but can’t enforce blanket provisions included in agreements entered into before allegations arose.

Needless to say, there’s a lot that corporate legal departments need to consider when it comes to managing commercial contracts. The issues related to NDAs, which different jurisdictions approach differently, are not unique to NDAs. Similar disparities exist with respect to non-compete agreements (which the Federal Trade Commission recently proposed eliminating based on antitrust grounds), data privacy agreements, and other commercial contracts.

All companies, especially large ones who do business and have employees across state lines, can’t simply use one-size-fits-all standard contracts. And given the pace of legislative and regulatory change, companies must stay on top of new developments in order to ensure their contracts are compliant with the law. In-house lawyers and other legal department professionals are obviously capable of managing these and other types of nuances and complexities of commercial contracts. However, the question is: Is that the best use of their time?

For many corporate legal departments, the answer is no, which is why they look to a provider like Lexitas to outsource their contract management to. By outsourcing commercial contracts in this way, a company can better allocate its most important resource: its people. This enables legal departments to match the right work to the right person, get the quality contract management they need, and save time and money in the process.

One of the additional benefits of outsourcing to a partner like Lexitas is the ability to access our legal research outsourcing services, which we will be addressing in an article in more detail next month. Our talented legal research professionals help legal departments stay on top of the latest developments in the law, such as 50-state surveys on topics such as NDA and non-compete agreement limitations, which helps inform and improve contract management.

Want to learn more? Contact us to learn more about our commercial contract outsourcing services.

Please note: The information provided in this article does not, and is not intended to, constitute legal advice. All information and content are for general informational purposes only.

Meron Hewis is the President of the Legal Talent Outsourcing Division of Lexitas. Ms. Hewis has over 20 years of experience in legal consulting, project management, and alternative legal talent outsourcing solutions. She is a thought leader in the industry, providing unique legal solutions and designing the operations of various legal programs internationally.

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