What makes an NDA an unreasonable restraint of trade?

An NDA becomes an unreasonable restraint of trade when it is overly broad in scope, lacks a legitimate business interest, imposes an indefinite duration, or effectively prevents an employee from practicing their profession or earning a living in their chosen field.

Are NDAs and non-competes the same thing?

No. While NDAs protect confidential information, they are often challenged as 'de facto' non-competes if they are drafted so broadly that they prevent an employee from working for a competitor by prohibiting the use of general industry knowledge.

How do courts determine if an NDA is enforceable?

Courts apply a 'reasonableness' test, balancing the employer's need to protect trade secrets against the employee's right to mobility, typically evaluating the geographic scope, duration, and the specific nature of the information protected.

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What types of documents can TermScore analyze?

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What makes an employment NDA clause considered an unreasonable restraint of trade?

What Makes an Employment NDA an Unreasonable Restraint of Trade?

An employment NDA is considered an unreasonable restraint of trade when its restrictions exceed what is necessary to protect a legitimate business interest, such as trade secrets or proprietary data. If the clause effectively prevents an employee from utilizing their general skills or working in their industry, it is legally unenforceable.

The Legal Threshold for Reasonableness

Courts evaluate NDAs based on the balance between an employer's right to protect intellectual property and an employee's right to earn a living. When an NDA is drafted too broadly, it functions as a 'de facto' non-compete agreement, which faces intense scrutiny under modern labor laws.

Key Indicators of Unreasonableness

Overly Broad Definitions: Defining 'confidential information' to include general industry knowledge or skills acquired during employment.
Lack of Temporal Limits: Agreements that last indefinitely rather than for a reasonable period (typically 12–24 months).
Excessive Geographic Scope: Restrictions that apply globally when the business interest is strictly local.
Vagueness: Failing to specify exactly what information is protected, forcing the employee to guess what they can or cannot discuss.

Key takeaway: If your NDA prohibits the use of 'general knowledge, skill, or experience' acquired during employment, it is likely an unreasonable restraint of trade and potentially voidable in many jurisdictions.

Comparison of Enforceable vs. Unenforceable Clauses

Feature	Enforceable Clause	Unreasonable Restraint
Scope	Specific trade secrets/client lists	General industry knowledge/skills
Duration	12 to 24 months	Indefinite or 'perpetual'
Geography	Limited to actual market area	Global or 'wherever the company does business'
Purpose	Protecting proprietary data	Preventing competition

Jurisdictional Variations and Modern Trends

The legal landscape is shifting rapidly. States like California have long held that almost any restraint on trade is void under Business and Professions Code Section 16600. Other states, such as New York and Illinois, have recently introduced legislation limiting the use of restrictive covenants for low-wage workers.

Review Local Statutes: Always check state-specific labor codes, as some jurisdictions prohibit NDAs that function as non-competes entirely.
Assess the 'Legitimate Interest': Ask if the information being protected actually provides a competitive advantage. If it is public knowledge, the NDA is likely unenforceable.
Evaluate the 'Blue Pencil' Doctrine: Determine if your state allows courts to 'rewrite' overbroad clauses or if they will strike the entire provision down.

How to Audit Your Employment Agreements

To ensure your NDAs remain enforceable, you must conduct regular audits of your standard employment contracts. Focus on narrowing the definition of confidential information and ensuring that the duration of the restriction is tied directly to the shelf-life of the data being protected.

Actionable Steps for Compliance

Audit existing templates to remove 'catch-all' confidentiality language.
Ensure that the NDA does not overlap with non-solicitation or non-compete clauses in a way that creates a cumulative, unreasonable burden.
Update agreements to reflect the current 'reasonable' standards in your specific industry.

Key takeaway: Courts are increasingly hostile toward 'boilerplate' NDAs. Tailoring your agreements to the specific role and the specific data the employee handles is the best defense against a claim of unreasonable restraint.

TermScore provides an automated, AI-driven analysis of your employment contracts to identify overbroad clauses, unreasonable durations, and potential conflicts with state-specific labor laws. By flagging these issues before they reach a courtroom, TermScore helps you maintain enforceable agreements that protect your business while respecting employee mobility.