Non-Disparagement Clauses vs. NDAs & What Should We Do?
It’s been a little over a week since the ELLE article featuring my experience was published. Sharing my story wasn’t easy and it’s taken me a little time to adjust to everything finally being in the open after the last four years, but I’m truly touched by the outreach and support.
A major reason for sharing my story was to show the damage that an unchecked non-disparagement clause can be leveraged to do. Over the course of the last week, I’ve seen quite a bit of discussions regarding non-disparagement clause vs NDA, what they cover, where to find them, etc.
So, I wanted to share what I’ve learned the hard way.
So, what’s the difference between an NDA and a non-disparagement clause?
Employers often require you to sign a Non-Disclosure Agreement (NDA) to protect all information shared during your tenure, including negative information. An overbroad NDA is often illegal, but violating an NDA — especially one that only covers only truly confidential information — can result in a lawsuit from your employer. Courts today are skeptical of overbroad NDAs because they harm competition and can prevent the disclosure of illegal conduct. In fact, California passed a law in 2018 prohibiting NDAs that would prevent an employee from discussing workplace harassment and discrimination. New York and New Jersey have also passed similar legislation.
A non-disparagement clause prevents you from saying anything negative about an employer in any form of communication. This includes posting on social media or talking with a friend. It doesn’t matter if what you’re saying is true (that deals with defamation) — as long as what you say is deemed as “negative,” it’s disparagement. For example, even saying you “quit” can be argued as “disparagement” — depending on how the company wishes to interpret the statement.
Where do I find them? Are they obvious?
Non-disparagement clauses are often not as obvious to find. Unlike NDAs, they’re usually not in a separate one- to two-page document. It is especially tricky in venture capital. My non-disparagement clause was just a handful of lines buried in a 169-page limited partnership agreement, that was attached to but separate from the much shorter actual employment agreement. Similar clauses can be found in general partnership agreements — and is “standard” in most venture capital partnership agreement templates.
While it seems obvious to read everything in your contract before you sign it, honestly, most people do not have the time, expertise, or resources to read every line of an agreement of that length.
What should you look out for as an employee?
When in doubt, hire legal counsel to review your agreements, all of them: employment contract, partnership agreement, amendments, etc.
But, of course, if you’re just starting out, contracting a lawyer to review a 169-page agreement is very costly and likely not the most viable solution. So, here are a few targeted questions to ask the employer (or to consult a lawyer on a more limited basis):
- Does the clause have time limits or geographical limits? In almost all cases, it does not, which means that you will never be allowed to say anything negative about a past employer. Ever. This is not ok.
- What is the scope of the non-disparagement clause? Does it cover just the company and its business practices? Or does it cover everyone affiliated (like all shareholders) and their “integrity [and] fairness”?
- Does it include carry (carried interest) as leverage? From my experience, VC firms will often deduct from your vested carry for each instance of alleged disparagement.
What can we do as General Partners (GPs) or Limited Partners (LPs)?
A new California law recently went into effect (January 2022) to prohibit employers from requiring employees to enter into non-disparagement agreements that limit their ability to speak publicly about workplace conditions or illegal acts.
GPs at venture firms should check the agreements to update these clauses. When I joined Bullpen Capital, one of my non-negotiable terms was that we revisit our docs. Eric and Paul were totally in support of my request, and the various agreements were updated accordingly. I encourage all firms to take a closer look at their docs (especially if you’re using a template) — and update overbroad non-disparagement clauses to have proper limitations and exceptions, just like we do with NDAs.
LPs can make a huge difference here: Look through the partnership agreements for funds that you’re investing in or engaging with. If you see overbroad non-disparagement clauses, ask for them to be updated, especially in light of the new California law.
Clauses like these provide unbounded, unchecked protection for employers.
Only when we reduce the threat against speaking out, can there be a change for true accountability.
To read more about my experience, you can find my Elle feature here: https://www.elle.com/ann-lai
Please note: I am not a lawyer, and this article is not legal advice. For legal advice, please consult an attorney. I’m happy to provide introductions.