The Importance of “Staying on Top of Your Game” and Having a Separate NDA and Employee Handbook

In today’s fast-moving competitive business environment, protecting sensitive company information is critical. Whether safeguarding a customer list, intellectual property or maintaining privacy in early-stage commercial discussions, a Non-Disclosure Agreement (NDA) (often referred to as a confidentiality agreement) serves as an essential tool for businesses of all sizes. To confront this concern, many companies make the mistake of simply including an NDA provision in their Employee Handbook, without more, rather than a standalone NDA. In our experience, this is a mistake, is likely unenforceable and leaves your business vulnerable to serious risks without the protection of a non-disclosure obligation – which may put the company in breach of non-disclosure obligations it owes to third parties.

We have seen firsthand how companies hoping to enforce an NDA embedded in an Employee Handbook can be stymied. Such an approach introduces: (i.) “non-NDA” issues into what should be a straight-forward breach of confidentiality matter, (ii.) brings into question the employee’s “knowing” agreement to the NDA, and (iii.) is often an unenforceable provision as most Employee Handbooks include a provision expressly stating that it is not a binding agreement. In New Jersey, for example, as a result of prior Court decisions, almost all Employee Handbooks included a clear and prominent disclaimer stating that the handbook is not a binding agreement to ensure the many handbook policies do not create contractual obligations with employees. As such, if your NDA is not a separate, legally enforceable agreement, your business is at risk of losing control over your proprietary information, may be in breach of obligations you owe to third parties, facing competitive disadvantages and even dealing with costly legal battles. To fully protect your business, it’s essential to have a dedicated NDA (and non-compete, where appropriate) separate from your Employee Handbook.

Why an NDA Should Be Separate from an Employee Handbook

Many employers assume that including confidentiality policies within their Employee Handbook are sufficient for protecting sensitive business information. This approach is flawed for several reasons:

  1. Legal Enforceability. Employee Handbooks typically explicitly state that they do not create binding legal obligations. As a result, courts are likely to not view the confidentiality provisions within a handbook as a legally enforceable contract. A standalone NDA, signed by the employee, creates a clear, binding agreement that is easier to enforce in the event of a dispute.
  2. Extrinsic Issues. Employee Handbooks typically contain a wide variety of policies and processes, which when combined with an included NDA, become part of the contractual analysis. For example, was the employee given all the time off set forth in the handbook, and if not, is the NDA not enforceable? If the NDA is an enforceable agreement, does the Handbook create an employment contract limiting the employer’s ability to terminate the employee? Simply stated, all of the policies and processes included in the Handbook arguably become part of the contractual analysis and what should be a straight-forward contract action can become an argument over “break time.”
  3. Tailored Confidentiality Terms. A separate NDA allows businesses to tailor specific terms regarding employee obligations toward confidential information, including:
  • Explaining why confidentiality is important, for example, the Company has both contractual and legal obligations to protect third party confidential information it has in its possession;
  • What constitutes confidential information;
  • What is not confidential information;
  • Required and permissible exceptions to confidentiality;
  • How long confidentiality obligations last (even after employment ends);
  • Provide an obligation to return confidential information and company equipment at the end of employment; and
  • Legal remedies in case of a breach, including costs and attorney fees (a “stick” to keep everyone honest).

In contrast, an Employee Handbook covers a broad range of workplace policies and is not designed to handle the nuances of confidentiality agreements.

  1. Confidentiality Beyond Employment. A well-drafted NDA remains in effect even after an employee leaves the company. An Employee Handbook, on the other hand, is often perceived as only applying during active employment. Without a separate NDA, former employees may argue, and be right, that they are no longer bound by confidentiality obligations after they’ve left the company.
  2. Flexibility for Non-Employees. NDAs are not just for employees. They are also essential for contractors, vendors, business partners, and investors - all of whom may have access to confidential information. A separate NDA ensures that confidentiality obligations extend beyond the internal workforce, offering greater protection for the business.

What Should Be Included in a Strong NDA?

To maximize legal protection, an NDA should contain key elements that establish clear confidentiality obligations. These include:

  • Definition of Confidential Information – Clearly specify what information is covered under the agreement.
  • Obligations of the Receiving Party – Outline restrictions on sharing or using confidential information.
  • Duration of Confidentiality – Establish how long the agreement remains in effect (even after employment or the relationship ends).
  • Permitted Disclosures – Identify circumstances where information may be legally shared (e.g., court orders).
  • Legal Remedies for Breach – Detail the consequences of violating the agreement, such as financial damages and who will pay for costs and attorney fees.

By having a separate well-structured NDA, businesses increase their ability to enforce the agreement and reduce ambiguity and arguments against enforceability.

Employee Handbooks Still Play a Vital Role

Simply sated, NDAs and Employee Handbooks serve different purposes. An Employee Handbook remains a critical document for workplace policies, and should include:

  • General workplace policies and expectations;
  • Code of conduct and disciplinary procedures;
  • Conflict and dispute resolution procedures;
  • Employee rights and responsibilities;
  • Legal compliance and workplace safety policies; and
  • Generally explains benefits, perquisites, hours, and all the other day to day “housekeeping” matters you want your employees to have an explanation of.

It’s also important to recite in the Employee Handbook what other agreements are part of the “onboarding” process, including the NDA, reinforcing that confidentiality obligations of the NDA, just like the employee’s right to health insurance, is a legally binding agreement, while ensuring the handbook remains a flexible policy document rather than a contractual obligation.

Conclusion: Protect Your Business with a Separate NDA

Standalone NDAs are a necessary legal safeguard for any business that deals with proprietary or sensitive information. Relying solely on confidentiality clauses within an Employee Handbook weakens legal enforceability, may not satisfy the obligations you owe to third parties and exposes your business to significant risks. A separate NDA ensures stronger legal protection, clarity in confidentiality terms, and enforceability in court - all of which are critical to securing your company’s most valuable information.

If your business needs a separate NDA or you would like the one you have looked at, the McHattie Law Firm can help. Our team specializes in drafting customized, legally sound NDAs to protect your company’s confidential information. Contact us today to ensure your business is properly protected.