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?
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.