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What Is a Non-Disclosure Agreement (NDA)?

Stack of Confidential Papers

Non-disclosure agreements (NDAs) are legal contracts businesses, organizations, and individuals use to protect confidential information. That can include trade secrets, proprietary information, or other business information. They are sometimes called "confidentiality agreements." NDAs state that someone will not make protected confidential information available to outside parties.

What Are NDAs?

  • NDAs are legal agreements that prevent sharing of proprietary information 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, such as non-compete agreements, will sometimes include NDAs. So, NDAs are not always separate legal documents. Sometimes they are part of a joint venture agreement or a business idea-sharing agreement.
  • Not all NDAs are enforceable, and judges will not force parties to follow an unenforceable non-disclosure agreement. It's crucial to understand the exclusions within the confidentiality agreement.

Understanding Non-Disclosure Agreements

NDAs are common in business deals because they create a confidential relationship. This lets parties share confidential information without worrying that competitors will get it. Business partners often use these agreements to keep proprietary business information and intellectual property confidential.

NDAs may also appear in employment agreements. This keeps employees from disclosing sensitive information to competitors. Entrepreneurs that hire freelancers and independent contractors to meet their business needs often have the workers sign NDAs to protect proprietary information.

There are several types of NDAs. While each NDAs is unique, most agreements contain the following information:

  • The names of the parties making the agreement
  • The specific business information covered by the agreement
  • The types of information not covered by the agreement
  • A description of how the parties may use the covered confidential information
  • The term of the agreement (if there is no time, it is usually in effect indefinitely)
  • Other provisions include the state law that will apply and who has the legal obligation to pay the attorney's fees in a dispute

When Are NDAs Unenforceable?

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

Also, 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 confidential information would have become public knowledge regardless of the actions of the disclosing party.
  • The damages resulting from the disclosure are challenging to quantify.

State and federal laws govern NDAs because they can limit future employment and business opportunities. These laws are often complex, so consulting with an attorney before signing a non-disclosure agreement is a good idea.

What Happens When You Violate an NDA?

If one of the parties breaks an enforceable non-disclosure agreement, they face the threat of legal action from the other parties. This means one party files a lawsuit seeking financial damages and related costs. Common claims made against those who violate NDAs include:

Of course, filing a lawsuit is only the first step. To win in court, the non-breaching party must prove that the other party violated the NDA. They must also show they suffered damages due to that violation.

Questions About an NDA? Contact an Experienced Attorney Today

If someone asks you to sign an NDA or any legal document, or you have questions about an existing agreement, an experienced local attorney can help. The state and federal laws on non-disclosure agreements are complex and often subject to change. Protect yourself by speaking with an attorney specializing in NDA agreements. They will help you assess your options and ensure that you get up-to-date legal advice.

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