What is a Non-Disclosure Agreement (NDA)?

Non-disclosure agreements (NDAs) are legal contracts businesses, organizations, and individuals use to protect trade secrets, proprietary information, or other business information. Sometimes referred to as "confidentiality agreements," NDAs state that the parties will not make protected information available to outside parties.

Key Takeaways

• NDAs are legal agreements not to share private or confidential information with outside parties.
• Breaking an NDA is a breach of contract and could leave the party liable for damages.
• Other legal agreements will sometimes include NDAs as part of the terms. NDAs are not always separate legal documents.
• Not all NDAs are enforceable, and judges will not force parties to comply with an unenforceable agreement.

Understanding Non-Disclosure Agreements

NDAs are common in business deals because they create a confidential relationship that lets parties share information without worrying that it will be passed on to competitors. NDAs may also appear in employment agreements to keep employees from disclosing sensitive information to competitors.

NDAs commonly cover such confidential information as new product development, customer lists, future business plans, pricing information, or pending litigation. While NDAs can be detailed and unique, most agreements contain the following information:

• The names of the parties making the agreement.
• The specific information covered by the agreement.
• The types of information not covered by the agreement.
• A description of how the parties may use the covered information.
• The length of the agreement (if no time is listed, it is usually considered to be in effect indefinitely).
• Other provisions laying out such things as the state law that will apply and who has the legal obligation to pay the attorney's fees if there is a dispute.

When Are NDAs Unenforceable?

In most cases, NDAs are enforceable when the terms of the agreement meet the general requirements of a legally binding contract. As with contracts, most courts will not force a party to comply with an NDA if it finds the agreement unconscionable, related to illegal activities, in violation of public policy, was made under duress, or was the result of a mistake.

Additionally, courts have specifically found NDAs to be unenforceable for the following reasons:

• The terms of the agreement are overly broad, burdensome, vague, or unreasonable.
• The party seeking to enforce the NDA has already disclosed the information to a third party.
• The information would have inevitably become public knowledge, regardless of the actions of the disclosing party.
• The damages resulting from the disclosure are challenging to quantify.

Since NDAs can limit future employment and business opportunities, state and federal laws govern the agreements. These laws are often highly complex, so it is usually good to consult with an attorney before signing an NDA.

What Happens When You Violate an NDA?

If one of the parties breaks an enforceable NDA, they face the threat of legal action from the other parties to the agreement. This is often in the form of a lawsuit that seeks financial damages and related costs. Common claims made against those who violate NDAs include:

• Breach of contract.
• Theft of trade secrets.
• Unfair competition.
• Copyright infringement.

Of course, filing a lawsuit is only the first step. To win in court, the non-breaching party will need to prove that the NDA was violated and that it suffered damages due to that violation.

Questions About an NDA? Contact an Experienced Attorney Today

If you have been asked to sign an NDA or have questions about an existing agreement, contact an experienced local attorney to provide you with answers and guidance. The state and federal laws surrounding non-disclosure agreements are complex and often subject to change. Speaking with an attorney specializing in NDA agreements will ensure that you receive the most up-to-date advice and help you assess your options so that your money and assets are protected.

Related Resources

• Contracts Law Overview
• Business Law
• Business Contracts Basics
• Common Contract Terms Explained