21

Is there some kind of disclosure immunity if you violate your non-disclosure agreement to reveal fraud? In the United States, is there some kind of law that protects people when they violate their NDA in order to show that a crime was committed be it fraud or something else?

3
  • 4
    It may be relevant what word the NDA uses. NDAs are usually used to protect against disclosing information to competitors or persons. Disclosing information to law enforcement is usually not explicitly listed in an NDA, and may not be included in terms such as "any person or company"
    – Falco
    Jul 30 at 10:48
  • 1
    What is the context? Did someone get you to sign an NDA by deceiving you? I'm not a lawyer, but my understanding is that (1) that would be fraud, and (2) if they deceive you to get you to sign the deal, then the deal is void. Jul 30 at 19:05
  • I think the criminals who got busted would have a very hard time finding a jury who would side with them. Jul 31 at 3:05
22

In general, under the common law, a contract cannot validly require a person to commit or abet a crime. Thus if an NDA requires one to lie about or actively cover up a crime, it is void (in that aspect, at least). But there is, in most cases, no affirmative duty to report a crime, except for certain individuals in particular situations. Thus an NDA that simply requires silence may be valid.

There have been many Federal and state laws passed to protect so-called "whistleblowers" (people who draw attention to criminal or improper actions of which they have confidential knowledge. Many of these are listed and described in the Wikipedia article "Whistleblower protection in the United States" Exactly what protection is offered varies widely. Many of these deal with public employees or government contractors, not private employees.

In the case of Garcetti v. Ceballos, 547 U.S. 410 (2006) the US Supreme Court held that statements made in the course of a person's position as a public employee, rather than as a private citizen, have no First Amendment protection against employer discipline.

Whether a private employee will be protected against retaliation or the penalties listed in an NDA depends on the area of the alleged violation, and the specific facts of the case. One would be wise to consult a lawyer knowledgeable in this specific field before relying on such protections.

1
6

Yes

An NDA is a contract and a contract is unenforceable to the extent that it breaks the law or, more generally, is counter to public policy.

In NSW, s316 of the Crimes Act sets defines the crime of 'concealing a serious indictable offence’. An adult who knows or believes that a serious indictable offence has been committed and has material information that could assist with the apprehension or prosecution or conviction of the offender must bring that information to the attention of police or another appropriate body. A serious indictable offence is one that comes with a maximum penalty of 5 years or more and includes fraud.

The courts have said that there are two important provisos:

  1. The person must have had subjective knowledge of the commission of a offence, not mere suspicion, and
  2. The ‘material facts’ must not already known by police.

So, to the extent that an NDA prohibits disclosure of a serious indictable offence to the relevant authority (journalists or the internet are not the relevant authority), those provisions are unenforceable. It would be a defence to a breach of contract suit for the defendant to prove that they had subjective knowledge (not just a suspicion) and that they disclosed it only to the police or another relevant authority, for example, ASIC for a breach of corporations law, the ACCC for breach of consumer protection law, the EPA for breach of environmental law etc.

For lesser offences, the defendant could make the argument that an NDA that prohibited disclosure was against public policy even if it wasn't against the law.

However, ...

Where there is a statutory duty of secrecy, you can be prosecuted for breaching that duty.

For example, Witness K and their lawyer Bernard Collaery were charged after disclosing that the Australian Secret Intelligence Agency had used listening devices when negotiating the treaty regarding oil and gas deposits in the Timor Sea between the governments of Australia and Timor Leste. Witness K has pleaded guilty and received a 3 month suspended sentence, Mr Colleary has pleaded not guilty and is awaiting trial.

There is no doubt that the disclosure that Australia had used state intelligence apparatus to obtain a commercial advantage against a non-hostile nation in an economic treaty is in the public interest. However, Witness K came into the knowledge when he was an ASIS agent and there equally no doubt that his disclosure of it was a crime since there is no public interest defence.

8
  • Would the contract be unenforceable in both directions? For example, if an NDA promised some future payment, and one party made a disclosure under the Crimes Act, would the other party still owe that future payment? Or would the entire contract be voided?
    – tbrookside
    Jul 30 at 12:25
  • QUOTE An NDA is a contract and a contract is unenforceable to the extent that it breaks the law or, more generally, is counter to public policy. END QUOTE What exactly, does "public policy" mean in this context? If the president's avowed policy is to refuse to let foreign Muslims visit the U.S.A. and a contract provides that someone will pay you money and in exchange you will put up billboards criticizing that policy,..... I doubt that that's what you mean, but I don't know what to replace it with. Jul 30 at 19:08
  • @J... The custom on Law.SE is that when a question specifies a particular jurisdiction answers about that jurisdiction are encouraged, but answers about the same issue in other jurisdictions is still on-topic and such answers may be posted and upvoted. This is to avoid having possibly dozens or even hundreds of very similar questions: Is X legal i the US, is X legal in the UK, is X legal in France, is X legal in Italy, is X legal in Brazil, and so on. Jul 30 at 19:29
  • 2
    @Michael Hardy duhaime.org/LegalDictionary/P/PublicPolicy.aspx describes "against public policy" as "Certain acts or contracts are said to be against public policy if they tend to promote breach of the law, of the policy behind a law or tend to harm the state or its citizens. " See also upcounsel.com/… or do a google search on "contract against public policy" Jul 30 at 19:35
  • 1
    @tbrookside if a contract is rendered null and void then no part of it applies. It would be as if the contract never happened.
    – Neil Meyer
    Jul 30 at 22:29
4

There is also the concept of illegal contracts. A contract cannot be enforced if it forces either party to do something illegal. In the case you mention if damages was sought the defendant could make the case that the NDA if enforced would make the defendant an accomplice to fraud and is thus an illegal contract.

1
  • Not applicable in most countries AFAIK. Because (1) there is usually no duty to report suspected fraud, just to not be complicit in actual fraud, so not reporting isn't actually illegal in the first place; (2) even if it was illegal a court will try to minimise the impact, so it'll strike out part of contract thats unworkable rather than all of it, to try and respect the (legally valid aspect of the) intent of both parties in signing it. "Public policy" is more likely to be relevant.
    – Stilez
    Aug 1 at 7:06
3

One of the main legal effects of an NDA is to make information a trade secret. And, a recently enacted federal law, the Defend Trade Secrets Act, creates mandatory exceptions to trade secret protection for certain purposes that amount to whistle blowing.

But, there isn't necessarily a categorical exception for all circumstances from NDA restraints because improper conduct is observed. Often there would be, but it is possible to imagine exceptions.

For example, if the information covered by the NDA with a non-attorney employee of a law firm was attorney-client privileged information, the NDA would be effective to bar the person bound from reporting it. Now, there is a crime-fraud exception to the attorney-client privilege, but it is generally limited to frauds that are carried out with the services of the law firm and not merely cases where there was a past fraud by a client when the law firm is defending the client against fraud claims against the client.

1
  • 2
    You could make the case that the employee of the law firms still acts as agent for the law firm and is thus client confidentiality still applies to any information gotten in the workplace
    – Neil Meyer
    Jul 30 at 21:25
2

Also bear in mind that you could only be sued for an actual loss caused by your NDA breach. Not just for the fact of having breached it (usually).

That means the legal advice of the other side will be, dont sue unless they can prove a loss actually arose from it - and if there is significant doubt whether the case will be thrown out for lack of proof, or public policy or any other reason, thats a factor too.

Meaning, it isn't just whether you can legally disclose. Its more about if you did, would they feel confident enough they could sue and win (including "non-legal" considerations such as not being ripped to shreds for covering up, reputation damage, public policy, ability to recover anything, etc). Its never just as simple as "can they sue".

1

My first reaction is to say,probably no immunity. Much as you'd think public policy would cover it.

Rationale: the literally thousands of NDAs used to seal payoffs for claimed abuse or other conduct that would be illegal if a jury agreed they were proven.

Example: Senior Businessman does act that would be deemed sexual assault, maybe even rape, if charged and found proven. Victim is paid off "without admission of guilt" and usually required to sign an NDA. This has happened literally thousands of times. The victim surely gets legal advice before accepting the payoff/compensation and signing the NDA. If the advice they got was, "don't worry, the NDA doesn't mean a thing because you cant NDA an alleged illegal act that you have evidence for", I think we would hear about it much more, 3 seconds after the payoff hits the victims bank account.

The fact that this doesn't happen, and perpetrators' lawyers keep requiring NDAs, suggests the NDAs have standing.

If they would have standing for claimed/evidenced sexual assault and rape, they probably would for claimed/evidenced fraud as well.

So Im reluctantly dubious.

2
  • That's not going to work. If a DA suspected a crime was occurring, they can compel testimony! Your only defense is "the truth might tend to incriminate ME*". There's no "I signed an NDA with Joe Blow" defense lol. If you tried that defense you'd be in jail for contempt of court. The best Joe Blow could hope for is to get a hearing and convince a judge to agree the damage to Joe's privacy would wildly exceed the usefulness as evidence. Hard argument. Impossible for a perp. Aug 2 at 0:03
  • Being compelled to disclose (if you can be) isnt going to make you liable for breaching the NDA, though. That's one that a court definitely wont allow - a person who is compelled by a court under pain of contempt or other penalty, without recourse, to disclose, then being litigated against because their compelled testimony broke an NDA. The OP isnt worried about disclosing that a fraud took place, or their privacy (sounds more as if theyd like to, if able?), so much as being sued for breach of NDA if they do so. But in the situation you give, they cant be sued. No court would allow it.
    – Stilez
    Aug 2 at 0:11

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.