A non-disclosure agreement (NDA), also known as an NDA or a confidentiality agreement, is a contract that prevents one party from releasing secret information binds a recipient of secret information, including trade secrets or proprietary business information, to outside parties. If the party violates the non disclosure agreement, they could be liable for damages. A non-compete agreement should often be used with an NDA to prevent a business or individual from performing competitive activities in the same industry.
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A non-disclosure agreement (NDA), sometimes referred to as a non-disclosure form or NDA form, is a contract for a business relationship where the parties involved agree to enter a confidential relationship to protect the information described in the agreement. According to the Small Business Administration, NDAs can cover any information, knowledge, or material that is not already public or that people may already know. However, many states also have laws that govern NDAs and provide injunctive relief if they are violated. So, while the SBA gives good information on what may be included in a confidentiality statement, you should consult the law to ensure that your NDA is legal and can be enforced.
NDAs are often created when two parties agree to conduct business with each other. Examples include working with a consultant, meeting with potential directors or officers, considering a joint venture, or considering another potential business relationship. It is also used in employer-employee relationships.
Types of NDA’s
Mutual VS Non-Mutual NDA: What’s the Difference?
Other names for NDA’s
NDAs are also called confidentiality agreements, proprietary information agreements, confidential disclosure agreements (CDA), hush agreements, or secrecy agreements (SA).
Here are some situations where NDAs are commonly used:
You don't want to overuse this type of agreement. People dislike hassle. A powerful party like a potential investor may walk away from the requirement of signing one if there is a project that doesn't require one. Think carefully about whether you really need one for your particular circumstances. For example, here are two situations involving intellectual property (IP). IP is a specialized and highly defined idea, thought process, or information that you want to protect. It can be a unique process, copyrighted material, trademarked material, or patented material that isn't available to the general public.
Not NDA-Appropriate: An idea for an oxygen-driven robot that makes macaroni and cheese.
NDA-Appropriate: An idea - including blueprints, calculations, and a list of potential materials - for an oxygen driven robot that makes macaroni and cheese.
The first idea is just that: an idea. It seems original, but from a technical perspective someone else could have thought of it. The second idea warrants a non-disclosure agreement because it includes data: specific plans, blueprints, calculations, and a list of materials. That information can be used to bring the idea to reality. In other words, it contains intellectual property that someone else couldn't just think of. It is, therefore, in need of official legal protection.
Employment/Service NDA
Sometimes, employees need sensitive, company information to do their jobs. When that’s the case, the employer uses a standard NDA. The employee is required to sign before they start their job. The NDA essentially makes the employee promise that they will maintain the secrecy of company-specific activities that are considered a trade or business secret. It may also include a provision that says if the employee leaves, they cannot disclose what they learned for several years.
Business Purchase/Sale NDA
An NDA for a business purchase or business sale is used when the seller will disclose information (this may also include financial information) about the business before the sale is finalized. Sometimes, showing this information, and how it is used in the business, can facilitate the sale.
Invention NDA
An invention NDA is generally used when someone is looking for a commercial partner after they’ve invented something. This essentially promises the inventor that the person or business they’re presenting their invention to will not steal the idea or the prototype.
If you are a business owner using a confidential disclosure agreement, you're asking that person to sign something requiring them to not share information that may be disclosed to them. Breaking the terms of this contract could entail serious legal repercussions. Common information covered in an NDA includes, but may not be limited to, client information, trade secrets, investment strategy, a unique invention or patented idea, a marketing plan, a plan for a new manufacturing process, a document that is being prepared for publication, or test results revealed to lab workers.
For an employee or a business partner asked to sign such an NDA, you’re being asked to sign because you’re going to receive certain information. Your signature promises that you won’t share that information. It’s vital that you understand your obligation. If you do not uphold your duties, you could open yourself up to a lawsuit.
While there are endless possibilities of what may be included in an NDA, most share the following elements:
These are just the basics. Some jurisdictions may have additional provisions for this sort of contract. When drawing up yours, be sure to check local laws for any requirements.
At the top of the document, you’ll see a title clearly indicating that it is an NDA. Under the title, there should be a section specifying the full names of the primary parties involved. They may be referred to as the disclosing party and the receiving party. If the involved parties are an employer and employee, the parties as “employer” and “employee.” For businesses and independent contractors it may be written as “business” and “contractor.” It's not unusual for the contract to specify the location and contact information of the mentioned parties. Next, there should be a statement that the two parties agree not to disclose the referenced information. The description of that information is included later in the document.
The next section is the main part of the agreement. It outlines the information that must not be disclosed. The information should be defined as precisely as possible. There may also be a component of the contract in which exclusions are specified.
Another component of the agreement template explains the obligations of the receiving party. These obligations center on the requirement of the recipient to keep the information confidential unless they have written permission from the disclosing party to share it.
There may be a section that lists the time period of the contract, as well as any sever-ability clauses. These are conditions under which the contract may be terminated. At the bottom of the agreement, you should include sections for both parties to print and sign their names and to write the current date.
According to the Harvard Business Review, approximately ⅓ of employees in the US sign an NDA. Sometimes instead of using a stand alone NDA, an employee contract may include a non-compete clause which prohibits a full time employee from working for a competitor for a given period of time. It may also include confidentiality clauses that perform the same function as an NDA.
If you’re a contractor and are asked to sign an NDA, consider the following:
Developers are often asked to sign NDAs. It’s important to understand both why this occurs and how to make sure the NDA request is fair.
Assessing Red Flags
Here are some things to look out for when signing an NDA. The inclusion of any of these items is a red flag that indicates the agreement may not be in your best interest.
It is important to highlight that NDAs cannot fully prevent other companies from using your IP. That is too broad to be legally binding. There must be clearly defined confidential information or trade secrets listed. With this in mind, the creative team of any business may need to obtain a series of NDAs at each stage of the project. Doing this means that each individual stage (along with its secrets, IP, and other confidential information) is fully outlined and you have documentation of the receiving party’s agreement.
For startups seeking venture capital investment, NDAs are not recommended. Most VC investors will refuse to sign them. Investors generally do not sign NDAs because they hear thousands of pitches each year. An agreement like this generally has a term of two to five years. It would be close to impossible for an investor to sign and keep up with the terms of what would amount to thousands of NDAs.
What Can You Do?
A non-disclosure agreement is a contract between two parties in which one or both agree to keep certain information confidential. Let's say, for example, that a publisher wants to hire an editor for a newly written e-book. The publisher wouldn't want the proofreader to take the information in the e-book and use it to write and sell their own version. By having the editor sign a non-disclosure agreement, the publisher is creating a legal instrument that may help prevent the editor from using the information.
The language used in the form is important since a properly written NDA must clearly define the information that must not be shared. Upon considering the legal aspects of a non-disclosure agreement, it’s easy to see why they are commonly used. Just remember to do your research, learn as much as you can, and find out how it can protect you and your business.
It is imperative that the parties read the NDA carefully prior to signing it because it is is a legally binding document. By signing such a document, you are agreeing to all of its terms and conditions.
Are all NDAs legal? Can you ever break an NDA? Not all NDAs are legal. First, it’s important for you to know that when an NDA is overly broad, it’s next to impossible for a court to enforce it. Saying “intellectual property” is broad. Does it mean an idea? A copyright? A trademark? A patent? A blog post? The list can go on and on. In fact, every state has its own rules on how this information should be defined. Currently, many states are reviewing their laws associated with confidentiality agreements to determine if they should be revised.
From a technical perspective, you can break an NDA any time you want. That doesn’t mean you should. Breaking it can result in you being sued for breach of contract. You may be required to pay money to the disclosure if you break the agreement. Yet, there are also times when an NDA is considered null or void. Of course, one of the most common ways that an NDA is null or void is because it doesn’t conform to local law. If you’re sued for violating the agreement, the fact that the agreement was overly broad or didn’t follow state law can actually become your defense.
NDAs may also be broken or null and void if the information within was given to the receiver by a third-party not named in the agreement or if it is something that’s available to the public or something that the receiver already knew. Then, there are NDAs that violate public decency laws or cover illegal acts.
NDAs are often part of settlement agreements involving sexual harassment. In these scenarios, the victim signs an NDA agreeing never to discuss the abuse in exchange for, typically, financial restitution (likely referred to as valuable consideration). If a victim breaks their silence, they may face legal action and may have to pay significant financial penalty, often more than the actual settlement amount.
NDAs, in these scenarios, are used by wealthy individuals and public figures to essentially buy silence and intimidate victims from speaking publicly about their abuse or maligning their abuser. Though these NDAs are legally enforceable, they are under increased scrutiny as a result of the recent high-profile cases of serial sexual abuse by public figures like Harvey Weinstein.
Sexual harassment is defined, legally, as a form of discrimination based on sex. This can occur in many ways, including unwanted sexual advances, requests for sexual favors, verbal or physical conduct of a sexual nature, etc.
It is important you know that you have resources and that you use them if you are sexually harassed.
Contact the EEOC. Even if you don’t want to file a formal complaint with the EEOC, you can always contact an EEOC counselor for more information or resources.
Note that you only have 180 days from the date of the activity to file a claim.
This is, unfortunately, far too common for victims who report their harassers. Many individuals (particularly women) do not feel safe speaking out against workplace sexual harassment for fear of retaliation, including the possibility that they might lose their jobs.
It is important to make sure you have a support system when reporting (friends, family, and colleagues) and also understand that employers are legally prohibited from retaliating against employees who report sexual harassment.
In Conclusion
That covers the basics of NDAs. As you see, NDAs are often very simple and easy to navigate. They are put in place to keep important information private. Often, involved parties have no issue signing NDAs. However, there are other instances where NDAs can be complicated, too broad, or be too burdensome for signees. At their worst, NDAs are used to cover up abusive behavior. We hope this guide helps you navigate the wide range of uses of NDAs--from the simple to the complex.
Methodology
Our team at FormSwift created a map to show how states deal with workplace sexual harassment because of the amount of sexual harassment claims brought forth throughout the US and in 2017 and 2018, particularly in relation to non-disclosure or confidentiality agreements. We divided states on the map into three categories: states with proposed or enacted new legislation to combat workplace sexual harassment and/or its reporting, states in the process of revising or discussing current legislation, and states that have not discussed nor proposed new legislation. We included, along with our map, a chart of resources to each state's proposed legislation (when applicable).
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