Can an Employee Non-Disclosure Agreement Be Enforced After Resignation?

What is a Non-Disclosure Agreement (NDA)?

A Non-Disclosure Agreement, or confidentiality agreement, is an enforceable contract that imposes a fiduciary duty on one or both signatories to keep certain information confidential. Generally, these NDAs are made for employment, partnerships, and business negotiations. NDAs define the limits of confidential information and the penalties for violating their terms and conditions.

In employment settings, the NDAs typically address trade secrets, business strategies and models, vendor and customer databases, proprietary technology, and technical processes of the concerned business.

NDAs may include provisions specifically stating they "survive termination of employment," so that requirements to keep confidential do not lapse following the termination of employment. This clause is also known as the "survival clause". This clause helps in the continuation of the Non-Disclosure Agreement even after resignation.

In India, agreements related to restraint of trade are covered under Section 27 of the Indian Contract Act [1] says, "Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."

However, the courts have acknowledged that reasonable confidentiality provisions, even after employment, hold good as long as they do not amount to an undue restraint on trade. The NDA, in contrast to a non-compete agreement, does not prevent the employee from working elsewhere but only from revealing confidential information.

Case Reference: In Niranjan Shankar Golikari v. Century Spinning & Mfg. Co. (AIR 1967 SC 1098)[2], the Supreme Court of India upheld a confidentiality clause in the post-employment agreement and differentiated it from a restrictive covenant on trade. According to the court, the protection of trade secrets and confidential information is a valid interest, and such clauses are not inherently said to be void under Section 27.

Elements that help in Determining Enforceability

To determine whether an NDA can be enforced upon resignation or termination of employment, courts examine the reasonableness of the following:

1. Duration: The limitation must be for a reasonable duration; generally, it should be long enough to safeguard confidential business information. If you apply Indefinite limitations, then it can be very suspicious unless it is backed by reasonable information.

2. Geographic Scope: The clause must be customized to the employer's true geographical field of operation. A countrywide or international prohibition will be viewed as too extreme if the employer's business is regional or local.

3. Scope of Information: Only truly confidential or proprietary information can be covered under the NDAs. Publicly available or already disclosed information cannot be protected under an NDA.

4. Survival Clause: A properly written NDA would have a "Survival of Obligations" provision, which should explicitly describe which responsibilities (e.g., confidentiality) survive after the employment ends. This clause secures legal continuity of the duty even after termination of employment to safeguard sensitive information.

Common clause under NDA.

• Confidential Information: Expressly outlines what is considered confidential information, frequently encompassing trade secrets, marketing plans, financial information, and internal policies.

• Restrictions on Disclosure: Prevents the employee from disclosing sensitive information to unauthorized third parties.

• Use of Information: Restricts employees from using the information for anything apart than discharging their employees' duty.

• Post-Employment Restrictions: It is frequently used by employers it contains explicit restrictions against the use or disclosure of sensitive information even following termination.

• Return of Information: Mandates follow-up returns or deletion of all proprietary materials upon resignation.

When Does a Post-Resignation Breach Occur?

There is a breach when:

• The former employee discloses protected information to a third party or competitor.

• If confidential information is utilized for personal benefit or the gain of a new employer.

• Files, documents, or sensitive materials are still kept without permission after the termination of your employment.

These violations can result in injunctions, damages, and legal expenses, and in certain instances, activate claims under trade secret misappropriation laws, where relevant. Employers can also seek remedies like interim relief, specific performance, and compensation for loss incurred.

Employer's Remedies for Breach of NDAs

In case of breach of the contract, the employer can seek:

• Temporary or permanent injunctive reliefs by approaching the court compel or prohibits a party from taking specific actions, aiming to prevent harm or maintain the status quo. It's often sought when monetary damages are inadequate or when irreparable harm would occur without it.

• Can ask for Damages he suffered because of the employee, this is monetary compensation awarded to a party who has suffered loss or injury due to the wrongful act or omission of another. These damages are meant to restore the injured party to the position they would have been in had the injury not occurred

• Can ask for specific performance of the NDA, meaning a court order compelling a party to fulfill the obligations outlined in the agreement, rather than simply awarding monetary damages. This remedy is typically used when monetary compensation is insufficient to address a breach of confidentiality.

• Institute civil or criminal suits under the applicable laws.

The NDA itself constitutes prima facie evidence of the promise, which renders it easier to prove breach than in common law trade secret cases.

When NDAs Become Unenforceable:

Even though legally valid, certain NDAs can fail to stand in court if:

• The language is overly broad or vague.

• The information is not genuinely confidential.

• The agreement is coercive or lacks consideration.

• It imposes unreasonable post-employment restrictions.

NDAs cannot be used to cover up illegal acts or prevent whistleblowing, which would render them contrary to public policy and thus unenforceable.

Courts can also decline to enforce NDAs that seek to limit an employee's freedom to report workplace illegalities, harassment, or misconduct to the authorities. Such clauses are held to be void ab initio.

Comparative View: International Jurisdictions

In the United States, NDAs are generally enforceable but are subject to state-level trade secret laws and the federal Defend Trade Secrets Act (DTSA). In the UK, NDAs can be enforced as long as they safeguard legitimate business interests and are not overly restrictive.

Conversely, Indian courts are prudent in enforcing post-employment restraints and adopt a high threshold of reasonableness. The Indian judiciary is inclined to safeguard an individual's right to livelihood unless there is a strong justification.

Best Practices for Employers and Employees

For Employers:

• Precisely define what constitutes confidential information.

• Restrict the extent and term to what is necessary.

• Insert a well-crafted survival clause.

• Have mutual consent and valid consideration

For Employees:

• Read and comprehend the scope before signing.

• Define whether the limitations carry over after the resignation.

• Consult a lawyer if the conditions appear ambiguous or too general.

• Recover all company information and records upon termination.

In Conclusion, yes, an NDA may be enforced upon an employee's resignation — but only if it meets the test of reasonableness, legality, and clarity. While companies are perfectly within their rights to safeguard trade secrets, the provisions they use must be reasonable and narrowly defined. For workers, knowing your contractual obligations can help avoid legal traps and uphold professional ethics.

Finally, a carefully drafted NDA is not just a legal instrument, but also a code of mutual trust and responsibility. Post-employment confidentiality commitments assure that confidential corporate information continues to be safeguarded even as employees transition through their careers. Such commitments must be enforced, however, within the parameters of equity and law.

• [1] Indian Contract Act, 1872, § 27

• [2] AIR 1967 SC 1098.