There are countless situations where maintaining confidentiality is essential, and this holds for your personal and professional life. However, confidentiality is only sometimes given, even in times it is expected. Consider making a non-disclosure agreement (NDA) rather than merely counting on someone to keep their word.
Definition of Non-Disclosure Agreement (NDA)
NDA meaning
NDAs are legal contracts that businesses and individuals use to safeguard confidential information. NDAs establish a confidential connection that allows parties to discuss details without worrying about its disclosure to competitors.
NDAs may also be part of employee contracts to prevent employees from sharing critical information with rivals. These agreements are binding contracts that guarantee the confidentiality of certain information and the parties’ obligation to refrain from disclosing protected information to third parties.
NDAs go by many different names, such as confidentiality agreements (CAs), proprietary information agreements (PIAs), and confidential disclosure agreements (CDAs). However, they all generally share one very crucial feature.
Once you sign an NDA, you cannot discuss the information with an unauthorized party. Should either party violate the terms of the NDA, there are legal repercussions in place to handle that.
Purpose of Non-Disclosure Agreements
An NDA serves two purposes: protection and confidentiality. An NDA establishes the legal framework to prevent ideas and information from misappropriation and disclosure to rivals or outside parties.
Legal repercussions, including financial penalties and criminal charges, may result from breaking an NDA agreement.
NDAs are crucial to use with employees and business partners if your company depends on trade secrets or other sensitive information to function.
Startups may also use NDAs to protect their innovative ideas from misappropriation by the negotiating parties.
Benefits of Using NDAs
Key benefits of using an NDA include;
Defines protected information
NDAs usually define what information is private and what information is public. Thus, allowing parties to freely engage while staying within the restrictions imposed by the confidentiality agreement.
Protects confidential information
An NDA is a legal commitment to maintain the confidentiality of sensitive information, and any disclosure of that material constitutes a contract violation.
An NDA assists you with real legal redress should there be a violation. This is as opposed to having a vague understanding of the repercussions of a breach of trust.
Protecting patent rights
Public revelation of a pending product or concept may nullify patent rights, and an NDA may safeguard an innovator as they create their new invention.
Helps preserve business relationships
An NDA provides peace of mind and safeguards your business information and relationship. An NDA keeps everyone aware of the sensitive data and consequences of breaching the agreement, which helps prevent misunderstandings that may otherwise ruin a business partnership.
Parties Involved in an NDA
The main parties to an NDA are the Disclosing Party and the Receiving Party. The receiving party could be a particular person, employees, or company representatives. It is also necessary to include relevant parties like lawyers and accountants.
Types of NDAs
Mutual
A mutual NDA is a legal agreement between two parties that forbids the disclosure of information in the contract and establishes a confidential connection between them. Take, for example, two companies that are considering a potential partnership. Each party may provide details about its operations as part of strategic dialogues, and both parties agree on confidentiality as they receive each other’s confidential material.
Non-mutual
Non-mutual NDAs, or unilateral NDAs, only bind the receiver of the sensitive information.
Employers mostly use this NDA on new employees who will have access to sensitive information about the company. Therefore, the employee is the party prohibited from sharing confidential information.
Disclosure
Disclosure NDAs are the exact opposite of a non-disclosure agreement, giving one party the right to reveal personal information while shielding them from legal consequences. For instance, a doctor might ask a patient to sign a consent form authorizing the sharing of medical information with an insurer.
Major Elements of an NDA
NDAs are usually unique and specific. However, most of them include the following elements:
- Names of parties in the agreement
- Specific information that the contract covers
- Categories of information not included in the contract
- A description of the possible uses of the protected information by the parties
- The duration of the contract (considered indefinite when there is no time specification)
- Repercussions of a confidentiality breach
- Clauses specifying;
- The state law applicable
- The individual responsible for paying the attorneys’ fees in a dispute
What Constitutes Sensitive Information?
Sensitive information is any information that a company discloses to the recipient while an NDA is in effect, and the information is usually confidential or specific to that company.
Examples of Information Requiring An NDA
There are countless ways for businesses to use NDA to protect themselves.
Among the information covered by an NDA include;
- Customer information
- Product specifications
- Operating information
- Intellectual property
- Marketing information
Consequences for Breach of Agreement
You will be subject to the penalties specified in the contract if you violate an NDA. Typical accusations leveled against persons who break NDAs include:
- Contract violation
- Copyright infringement
- Theft of trade secrets
- Unfair competition
If someone violates an agreement, they will typically be subject to a lawsuit. Depending on the terms of the agreement, this could lead to the following;
- Termination of employment
- Financial penalty
- Litigation
- The return of an asset
Naturally, filing a lawsuit is just the beginning. To prevail in court, the suing party must prove that there was a breach of the NDA. Further, they will need to prove that any loss suffered resulted from the violation.
Unenforceable NDAs – Why Does It Happen?
NDAs are often enforceable when their terms adhere to the essential requirements of a legal contract. Most courts, however, will not compel a party to comply with an NDA if it discovers the agreement;
- Morally reprehensible
- Associated with illegal activity
- In contravention of the law
- Was signed under duress
- Was the outcome of an error
Sample NDA Template
NDAs help prevents the disclosure of trade secrets or other sensitive information. Download a sample NDA template here.