How Reputational Nondisclosure Agreements Fail (Or, In Praise of Breach)

72 Pages Posted: 24 Jan 2023

See all articles by Mark Fenster

Mark Fenster

University of Florida Levin College of Law

Date Written: January 20, 2023

Abstract

Investigative reporters and the #metoo movement exposed the widespread use of nondisclosure agreements intended to maintain confidentiality about one or both contracting parties’ embarrassing acts. These reputational NDAs (RNDAs) have been widely condemned and addressed in the past half-decade by legislators, activists, and academics. Their exposure, often via victims’ breaches, revealed a curious and distinct dilemma for the non-breaching party whose reputation is vulnerable to disclosure. In most contracts, non-breaching parties might choose to forgo enforcement because of the cost and uncertain success of litigation and the availability of other pathways to a satisfactory resolution. Parties to a RNDA, by contrast, often decide to forgo enforcement when doing so would increase the very harm the contract sought to limit, and when victory would bring limited relief. It is unsurprising, then, that RNDAs are often under enforced, or enforced sporadically and with limited success. In such instances, the RNDAs have failed to meet their goals while they worsened the reputational harm of the embarrassing acts themselves.

This article describes RNDAs’ instances of failure and considers the consequences of these failures for parties to the contracts, the legal profession, and those who are troubled by their extensive use. It also begins an inquiry into the reasons behind the failures and their significance for understanding secrecy, disclosure, and contract law. These reasons include the fact that secrecy is always vulnerable to defection; information’s intangibility allows it to move freely, costlessly, and immediately; RNDAs purport to resolve a dispute fraught with hurt, emotion, and trauma through a one-shot financial transaction; and reputation is ethereal, susceptible to the vicissitudes of public opinion, and shaped by fact and rumor alike. RNDAs’ vulnerability to breach constitutes an alternative means to hold their abusive use in check beyond the well-worn paths of traditional legal reforms established through legislation and common law reform. Breach appears to be the best means not only to help victims but to discourage the use of RNDAs to silence victims, as well as to force attorneys and their clients to reconsider how they use contract law to protect secrets.

Keywords: NDA, privacy, secrecy, contract law, breach, employment law, #metoo, sexual assault, sexual harassment, Weinstein

Suggested Citation

Fenster, Mark, How Reputational Nondisclosure Agreements Fail (Or, In Praise of Breach) (January 20, 2023). Available at SSRN: https://ssrn.com/abstract=4332257 or http://dx.doi.org/10.2139/ssrn.4332257

Mark Fenster (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States
352-273-0962 (Phone)
352-392-3005 (Fax)

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