Confidentiality Agreements and Severance Pay: a Comprehensive Guide

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In the current state of the economy, job loss is an unfortunate reality for many, especially as layoffs continue for both small biotechs and pharma giants alike. 

In some cases, employees may be offered a severance package at the end of their employment. However, this is with the caveat that certain criteria have been met. One of these is that any confidentiality agreements (or NDAs) continue to be followed. 

Many employees will have signed such an agreement when they began their employment. Once the agreement has been signed, it becomes binding, regardless of the circumstances in which you might leave your job. 

A Guide to Confidentiality Agreements and Severance

It's normal to have questions about what these documents might mean in the wake of your termination. To help, BioSpace has provided a guide to confidentiality agreements and severance packages so you can feel confident making your next move. 

Confidentiality Agreement FAQs

Due to the highly innovative research that life science companies perform, it's common for companies to require employees to sign confidentiality agreements as soon as they are hired.  

Joshua Hawks-Ladds, co-chair of the employment law practice at Pullman & Comley, told BioSpace it's much more common for companies to require confidentiality agreements to be signed at the start of employment rather than the end.

However, he said it's common for severance agreements have confidentiality terms as well.

The majority of the time...the employer will require an NDA signed by an employee in order to protect the employer's confidential and trade secret information,” Hawks-Ladds added.

Do you have to sign a confidentiality agreement?

If a confidentiality agreement is a prerequisite of employment, then you’ll need to sign it before you can begin work, due to the nature of the research and innovation at life sciences companies.

These agreements can also protect you in any future roles at different companies. Your new employer will know that past confidentiality agreements prevent you from disclosing any lucrative information you may have. This means it’s unlikely you’ll be pressured into informing them of any trade secrets you might know. 

Can you be asked to sign a separate confidentiality agreement at the end of employment?

A life sciences company may ask you to sign another confidentiality agreement after your employment has been terminated. If you’re in a situation where you’re in line to receive a severance package, then signing the agreement would be one of the conditions that need to be met.   

“When there is a separation event, the employee is going to have to sign an agreement that has numerous covenants to get the severance. One of them is generally confidentiality,” Hawks-Ladds said.

As always, you can consult a lawyer if you’re unsure about any of the terms of your termination and severance. David Reischer, attorney and CEO of LegalAdvice.com, said the enforceability of a confidentiality agreement within a biotech company depends on a variety of factors, including:

  • The specific language of the agreement,
  • The jurisdiction in which it is entered into, and
  • Potential exceptions that may exist relating to third-party claims, public disclosure or regulation, 

"Generally speaking, courts will recognize a confidentiality agreement as valid and enforceable if the agreement is between two parties and contains reasonable terms for protecting confidential information,” Reischer said.

If you contest your severance, is the confidentiality agreement still binding?

The short answer to this question is yes. While you are absolutely within your rights to contest the terms of your severance, including any wrongful termination complaints, you must continue to follow the terms of your original confidentiality agreement.  

“An NDA is a separate promise and would have nothing to do with any claims of breach of contract or discrimination or retaliation,” Hawks-Ladds said. “That promise is to protect the employers confidential trade secret information. And the employee, or former employee in this case, is obligated to maintain that confidentiality, even if the employee is bringing an action against the employer.” 

The Takeaway

In the life sciences, confidentiality agreements are a fact of life. 

All companies, including life sciences companies, have the legal right to protect their proprietary information. This includes any research and development that their employees might be working on.

This means employees can expect to be asked to sign an NDA or confidentiality agreement before you can begin work and possibly when they leave the company as well. It also means this agreement will be legally binding even if they dispute the terms of the termination and severance. 

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