Non-Disclosure Agreements (NDAs) once served as vital legal tools to protect sensitive business information. However, many founders now misuse NDAs to shield misconduct, suppress dissent, and silence employees. This shift has triggered growing concern among legal experts, policymakers, and advocacy groups. Startups, known for disruption and innovation, increasingly face scrutiny not for their products, but for their internal practices—particularly how they deploy NDAs.
The Original Purpose of NDAs
Founders traditionally used NDAs to guard trade secrets, protect intellectual property, and maintain competitive advantages. In these contexts, NDAs helped startups operate in stealth mode, defend proprietary algorithms, and secure confidential partnership discussions. Investors supported this practice because it created legal clarity and reduced risks of information leaks during fundraising or acquisition talks.
The Problem: Expansion Beyond Confidentiality
In recent years, many startup founders expanded the use of NDAs far beyond their intended purpose. Instead of restricting NDAs to product or strategy disclosures, they began applying them to areas involving employee behavior, executive decisions, workplace culture, and even allegations of misconduct. This shift transformed NDAs into instruments of control.
Several startups included broad, vague clauses in employee onboarding documents that restricted individuals from speaking about any internal matter. These clauses often lacked clear boundaries, included lifetime obligations, and imposed legal threats for violations. Founders structured these agreements to deter whistleblowers, intimidate complainants, and conceal toxic behavior.
Data Illustrates the Scale
A 2024 study revealed that over one-third of U.S. workers currently operate under some form of NDA. In Canada, a public-interest legal group reported that 36% of people who experienced workplace discrimination or harassment signed NDAs as part of settlement agreements. Among women and marginalized communities, the rate was even higher.
An independent survey conducted by Speak Out Revolution found that 21% of respondents had signed NDAs. Among those, 90% experienced negative mental health impacts, including anxiety, isolation, and shame. Many individuals feared retaliation or financial ruin if they violated the agreements.
Australian researchers uncovered that 75% of sexual harassment settlements still included strict NDAs, despite professional guidelines recommending carve-outs. These numbers demonstrate that organizations continue to silence survivors even when guidelines suggest otherwise.
Founders and Startup Culture
Startup founders often operate in high-stakes, high-pressure environments. These conditions sometimes breed leadership cultures that discourage dissent and prioritize loyalty over transparency. Founders, especially in early-stage ventures, wield disproportionate influence. This power imbalance allows them to introduce broad NDAs without resistance.
In Silicon Valley, reports have surfaced of founders using NDAs to suppress concerns about burnout, discrimination, and toxic leadership. Some employees discovered that their contracts forbade public criticism or disclosure of internal issues, even after they left the company. These restrictions often extended to private conversations and social media interactions.
In 2021, a business news investigation uncovered several tech companies that forced employees to sign NDAs during layoffs. These documents not only restricted communication about severance terms but also prohibited speaking about the reasons behind termination. Startups justified these actions by citing reputational risk, but critics argued that the real motive involved suppressing damaging information.
Investor Pushback
Investors generally refuse to sign NDAs during pitch meetings or due diligence processes. Venture capitalists claim that NDAs complicate deal flow, limit their ability to compare startups, and offer little legal benefit since they rarely leak information. This resistance has not stopped some founders from demanding NDA signatures before sharing pitch decks.
Investors have begun to question founders who aggressively use NDAs with employees and partners. Some venture capital firms now include ethical clauses in term sheets, requiring companies to disclose past legal threats or misuse of confidentiality agreements. Founders who rely heavily on NDAs risk losing access to funding and long-term support.
Legal Landscape and Recent Reforms
Governments across several countries have introduced reforms to address NDA abuse.
In the United States, the 2022 Speak Out Act invalidated NDAs in sexual harassment and assault cases. This law protects individuals who come forward after experiencing workplace misconduct. More than 18 U.S. states have introduced similar laws to restrict confidentiality in settlements involving discrimination or abuse.
Texas passed House Bill 748 (Trey’s Law) in 2025. This legislation renders NDAs void in cases involving sexual abuse or human trafficking. Lawmakers designed this bill to ensure transparency and justice for survivors.
In Canada, provinces like Prince Edward Island and Nova Scotia enacted rules limiting the use of NDAs in workplace harassment cases. Legal associations across the country now encourage companies to create transparent and fair workplace agreements that do not suppress victims’ voices.
The United Kingdom also responded. A parliamentary report published in June 2025 criticized the music industry for using NDAs to silence victims of harassment. The report recommended a complete ban on such agreements in sexual misconduct cases. Higher education institutions in the UK already prohibited the use of NDAs in similar circumstances, setting a precedent for other industries.
Australian regulators issued new Respect@Work guidelines urging organizations to include carve-outs in NDAs. These carve-outs allow individuals to share their experiences with therapists, family members, or legal professionals without facing legal consequences.
Cultural and Ethical Implications
The misuse of NDAs has created a chilling effect within organizations. Employees who experience discrimination, bullying, or ethical violations hesitate to report them. Fear of legal action deters open discussion, leading to unresolved conflicts and deteriorating morale.
NDAs also erode trust between leadership and staff. When founders deploy NDAs as threats rather than protections, they signal a lack of accountability. Employees begin to view leadership as self-serving and opaque. This perception contributes to higher turnover rates and damaged reputations.
Survivors of misconduct often suffer prolonged emotional distress when forced into silence. They lose access to emotional support networks and struggle with unresolved trauma. Research shows that many people bound by NDAs experience long-term mental health consequences.
Responsible Use of NDAs
Founders must re-evaluate how they implement NDAs. These documents should serve as tools for protecting legitimate business interests—not as shields for unethical conduct. Responsible use of NDAs includes several best practices:
- Clearly define the scope and purpose. NDAs should apply to proprietary business information—not personal experiences or complaints.
- Include time limits. Agreements should not bind individuals for life.
- Exclude clauses that prohibit reporting misconduct. Laws now favor whistleblowers, and NDAs cannot override these protections.
- Allow carve-outs for mental health support. Survivors should speak with therapists, legal advisors, or family without fear.
- Create oversight mechanisms. Boards or independent ethics officers can review NDA practices and ensure fairness.
Conclusion
Founders who misuse NDAs jeopardize their companies’ integrity, credibility, and growth. The startup ecosystem depends on transparency, trust, and ethical leadership. Abusing legal tools for control undermines these values.
Governments, investors, and public opinion have begun to reject the unchecked use of NDAs. Legal reforms, public disclosures, and advocacy movements continue to pressure companies to adopt ethical confidentiality practices.
Founders who value long-term impact over short-term damage control must abandon the abusive NDA model. They must embrace transparency, protect whistleblowers, and rebuild workplace trust. Only then can NDAs return to their original role—protecting innovation, not silencing truth.