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What Consideration is Required for a Non-Disclosure Agreement in Texas?

Texas courts have long been battlegrounds for parties fighting over the enforceability of noncompete agreements. However, non-disclosure agreements (NDAs) have caused far less controversy. This is probably because non-disclosure agreements aren’t viewed as restraints on trade, nor do they typically prevent a former employee from working for a competitor. Even so, non-disclosure agreements do have real-world effects on employees, and as such they can become the subject of conflict. One of the questions in disputes over NDAs is whether there is adequate consideration involved.

Before analyzing consideration, it helps to understand what an NDA is. Sometimes called a confidentiality agreement, an NDA is a contract governing the sharing of information between people or companies and setting limits on how certain information can be used. Companies ask employees to sign NDAs to prevent them from divulging privileged information, which can be anything from trade secrets to incidents of sexual harassment.

Because an NDA is a contract, it cannot be valid unless it is supported by adequate consideration. Both parties to a contract are bargaining for something of value in exchange for something of value. “Value” doesn’t have to mean money. A promise to do or not do something can be adequate consideration as well. Litigation often centers around the adequacy of consideration because consideration is not objective. As long as the exchange is valuable to both parties, it doesn’t matter whether it meets anyone else’s definition of value.

In the NDA context, recent Texas court decisions make clear that the promise of continued employment is not adequate consideration. An employer must provide something more than continued employment in order to get an employee to sign an NDA. Further, any consideration provided must be new— an NDA that relies on previously provided benefits is probably invalid.

So to create a valid NDA in Texas, employers must provide some new consideration to the employee. This may be new cash, benefits, perks, confidential information or other things of value. It is not enough to promise that the employee can continue to work for the company if he/she signs the NDA.

Are you an employee who signed an NDA or is being asked to sign one and you’re not sure whether you should? Or perhaps you are an employer who wants employees to sign an NDA. In either case, The Law Office of Paul R. Clevenger in Dallas can help. I have decades of experience in drafting and litigating all types of contracts, including NDAs. You can schedule a meeting with me by calling 469-212-9764 or by contacting my office online.

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