‘I discovered a lot of shady business practices’: I want to blow the whistle on my former employer, but I signed an NDA. Am I doomed?

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By Blegug Nan


Dear Quentin,

I recently read the letter you answered from the person whose contractor used $100,000 of their money to pay off a debt. I worked for a company that was similarly ethically challenged, and where I signed a nonsolicitation and confidentiality agreement. 

I didn’t realize what I was signing at the time, as those documents were buried among a bunch of other paperwork. I left the company because they lied to me about bonuses and how the pay was structured, as well as about their code of ethics. 

It turns out I’m really good at working in that industry, and I enjoy it. I was offered a job with a company owned by a disabled veteran — I am a disabled veteran myself — but I now realize that I cannot take the new company up on its job offer because I signed a noncompete agreement with the old company.

Here’s my beef: The company I left is OK with getting paid monthly for services even if they never had the capability or intention of following through with those services. They also bill customers for these services and try to upsell customers to pay “overtime.” 

During my time there, I discovered a lot of shady business practices, and I would like to expose them, but I also signed a confidentiality agreement. I am curious to know, if I blow the whistle, what kind of repercussions would I be facing?

Anonymous

“Many NDAs are illegal when they are used to prevent current or former employees from reporting illegal activities.”

MarketWatch illustration

Dear Anonymous,

I’ll address your nondisclosure agreement first, and your noncompete agreement second. Breaking an NDA can result in legal and financial consequences, including criminal charges if the case is a particularly egregious one — for instance, one that involved highly sensitive material. If you’re the CEO of a major corporation, most reasonable observers would understand why you might have an NDA preventing you from jumping ship and revealing trade secrets at another company in the same industry.

However, NDAs cannot be used to prevent current or former employees from reporting illegal activities. Such activities may be related to sexual harassment, safety issues that could jeopardize the safety of employees, customers or the public, or financial malfeasance. Reporting such illegal practices is generally protected by the Equal Employment Opportunities Commission, the Securities and Exchange Commission or other state antidiscrimination agencies.

Noncompete clauses are probably more common than most people think and, as you experienced, they are often buried within reams of paperwork. Not everyone who has signed one knows they’ve done so. In fact, up 47% of private-sector workers are bound by noncompetes, studies have found. What’s more, 38% of employees say they have agreed to at least one noncompete clause in the past, according to this study conducted by researchers from the University of Michigan and the University of Maryland and published in the Journal of Law and Economics. 

You may find yourself stymied when it comes to taking a new job in your industry, at least for the duration of your noncompete agreement.

“Non-competes are more likely to be found in high-skill, high-paying jobs, but they are also common in low-skill, low-paying jobs and in states where non-competes are unenforceable,” the Michigan and Maryland researchers wrote. “Only 10% of employees negotiate over their non-compete, and about one-third of employees are presented with their non-compete only after having already accepted their job offer.”

Such agreements are designed to protect intellectual property and clients and to prevent employees from using what they learned at one company and passing that information to another company, or from setting up on their own and poaching customers and business relationships from their previous employer. However, California, Colorado, Oklahoma, North Dakota and Minnesota have all banned noncompetes, with critics arguing that they unfairly penalize workers and prevent them from making a living.

Such an agreement should not harm workers — fast-food workers, for example, should not be subject to such clauses — and should only be in effect for a reasonable duration. What is considered an unreasonable length of time varies by industry. “Generally, the time period in a non-compete tracks whether the employee’s skills, the activity that the employee is prevented from doing, will be obsolete at the end of the restricted time period,” according to Gardner Employment Law, a Texas-based firm.

“In the IT industry, for example, a five-year non-compete likely would be unenforceable because computer technology changes daily, if not hourly,” the law firm notes. “If a computer technician is prevented from working in IT for five years, for example, that employee may not be able to obtain any position in the field after the five years is completed.” The Federal Trade Commission last year proposed a rule to ban such clauses and took up a case against several companies.

You should review your noncompete agreement with an employment lawyer to make sure that it’s fair and reasonable. Also review your allegations against your former company with the help of your attorney, and make sure that you have the evidence to back them up. You don’t want to add a defamation lawsuit to your list of woes, particularly as a successful case against you could come with financial penalties. That, my friend, is where your lawyer can help.

Working for a bad boss or in a toxic work culture can be very traumatizing. Social scientists have likened it to living in an abusive or bad marriage. You may need time to recover before making any hasty and possibly life-changing decisions about your NDA and noncompete agreement. What is happening at your former company may or may not rise to an actionable level, so you will need to tread carefully. 

In the meantime, thank you for your service, and I hope that you find the right professional opportunity in good time.

More from Quentin Fottrell:

My father has dementia and ‘forgave’ my brother’s $200,000 house loan. The nursing-home notary said he was of sound mind. What can we do?

My husband bought our house with an inheritance. I signed a quitclaim. He said I could live there after he dies, but changed his mind. What now?

Low-paying jobs are the economy’s way of saying you should get a better job’: I’ve decided to stop tipping, except at restaurants. Am I wrong?

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter. The Moneyist regrets he cannot reply to questions individually.

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