Non-Disclosure Agreements

Business relationships often involve the sharing of confidential information that either or both parties wish to keep confidential. When this is the case, the parties may enter into a Non-Disclosure Agreement. As the name implies, a Non-Disclosure Agreement is a contract between the parties that binds at least one party from divulging or disclosing information covered under the terms of the agreement.

Why Might a Non-Disclosure Agreement Be Needed?

In some industries, the need for a Non-Disclosure Agreement (NDA) is more apparent than in others; however, almost any business may benefit from using an NDA at some point. Businesses engaged in scientific, information technology, or pharmaceutical research, for example, clearly need to protect cutting-edge research and discoveries, but even a small family-owned business may want to prevent the disclosure of trade secrets, client information, or other valuable information.

Who Are the Parties in a Non-Disclosure Agreement?

A business may enter into an NDA with an employee, a subcontractor, or another business. When the other party is an employee or subcontractor, a Non-Disclosure Agreement operates as a contractual agreement to keep the employee or subcontractor from divulging confidential information about the business to a non-authorized party. This is referred to as a “Non-Mutual NDA.” Businesses may also use an NDA during negotiations to protect sensitive information discussed during those negotiations from being leaked to a third party. This type of NDA is known as a “Mutual NDA.”

Non-Disclosure Agreement Requirements

A Non-Disclosure Agreement can be tailored to fit the needs of the parties; however, for the NDA to be enforceable, it must be properly drafted with clear terms, including, but not limited to:

• Scope. Courts frown on overly broad definitions of the information covered in a Non-Disclosure Agreement. To ensure that the agreement works as intended, it is best to clearly define the information to be protected.
• Exclusions and exceptions. If specific information is excluded from the non-disclosure requirement and/or there are exceptions to when or how covered information may be disclosed, those exclusions and exceptions should be included in the NDA.
• Time period. A Non-Disclosure Agreement can continue indefinitely; however, the parties may wish to include a definitive termination date in the agreement.

What Happens If a Party Violates a Non-Disclosure Agreement

A properly drafted and executed Non-Disclosure Agreement is a binding contract between the parties. If a party violates the terms of the agreement, it may constitute a breach of contract and can subject the breaching party to the remedies outlined in the agreement. Typically, the remedies include things such as termination of employment or financial penalties in a civil lawsuit.