Non Disclosure Agreements (NDAs)

A Non-Disclosure Agreement (also called a “Confidentiality Agreement”) is a contract that outlines private information that will be shared between two (2) parties, with the purpose of restricting one or both parties from sharing the learned information with non-sanctioned individuals. Typically used in business situations, the agreement can be an extremely useful tool when used in the right circumstances. Common types of secrets protected by an NDA include business plans, recipes, designs, commercial methods, or practices.

Non-Disclosure Agreements by State

Types of NDAs

Generally speaking, there are two common types of NDA’s. They are as follows:

Unilateral Agreement – In this method, only one (1) party will be disclosing the private information (typically called the “Disclosing Party”) and the other individual or company (the “Receiving Party”) will be learning it. This is the most popular type of agreement and is used when companies hire new employees, for companies sharing their business plans, for doctors protecting their patient’s information, and many more.

Bilateral Agreement – Here, both parties receive and disclose confidential information to each other. While less common than a Unilateral Agreement, it is most commonly used in the business world, for situations such as mergers or for fostering trust between two companies conducting business.

What is a Trade Secret?

A Trade Secret is a form of “intellectual property,” owned by an individual or company that can be in the form of a method, device, technique, formula, pattern, compilation, or other means that gives the party that created or discovered it a competitive advantage.

When to sign an NDA?

Although NDA’s may appear as a document only used for specific scenarios, they are rather prevalent in several industries and fields in the world today. For companies in the modern age, preventing confidential information is a must for staying competitive, avoiding lengthy court battles, and for keeping their focus on the things that matter most. The following are situations which are commonly protected by the binding contracts:

  • Hiring a Freelancer – Is the company looking to hire a new programmer? How about a company looking to outsource their marketing? If freelancers will have access to any secretive information (in which the majority of cases, they will), signing an NDA can ensure the information that is learned while working can’t be shared with competitors or third (3rd) parties.
  • Mergers, Sales, and Acquisitions – All three will most likely require the sharing of a company’s business plan and operations – as the potential buyers or partners will want to ensure they are making the correct decision.
  • Potential Investors – This one is tricky, as the majority of investors will not sign an NDA for the simple reason that they can be listening to several business pitches a day, and signing every NDA that comes there way would be impractical. However, in the technology industry, having an investor sign an NDA is more common, as the technology can be so damaging if landed in the wrong hands that they won’t pitch unless one is signed.
  • Hiring new employees – One of the most common situations in which NDAs are signed is during the hiring of a new employee that will have access to confidential information. If there is even a minor risk of an employee learning a Trade Secret, when in doubt, have them sign an NDA.

The above are only a few of the situations in which signing an NDA is wise. From medical practitioners to librarians, the applications of Non-Disclosure Agreements are widespread.

Elements of an NDA

The key to a good Non-Disclosure Agreement does not depend on the document’s length, moreover, on the quality of the terms and conditions within it. However, remaining legally binding and descriptive enough to hold up in court is equally paramount. The following sections are important pieces of an NDA:

Names & Addresses of the Parties

Does not just include the party disclosing the confidential information and the one receiving it; any third (3rd) parties should be included here as well. This can include coworkers, organizations, freelancers, or any other person or group who may be authorized to learn the information.

Definition of what constitutes as “Confidential Information”

A fine line separates what can be deemed as too definitive or too broad when specifying what is to be kept secret in the agreement. The party sharing the information (called the “Disclosing Party”) will frequently lean towards making the conditions as wide-ranging as possible to prevent the other party(s) from finding an alternative method of wrongly sharing the information. Contrarily, the party learning the information (the “Receiving Party”), prefers information that is precise and defined as to ensure they understand what can be shared and what can’t.

Information that cannot be deemed as confidential

Includes any info that cannot be restricted in the agreement, such as knowledge learned prior to the signing of the contract, info that is publicly available (or becomes publicly available), knowledge that is shared by a third (3rd) party not bound by a contractual agreement, or insight that was developed independently without the use of confidential information.

The Requirements of the Receiving Party (learning the Confidential Information)

What the party learning the information is required to keep secret, how they are supposed to keep it secret, and actions the party is required to take during the agreement or at the termination of thereof.

Term (duration) of the Agreement

The length of the agreement can vary from one (1)  year to indefinitely. The length of the term is dependant on several factors, which include the field in which the secrets are shared, the type of information, the number of individuals or companies bound by the agreement, and the cost of preserving the trade secrets.

Severability Clause

A general statement that specifies that if any provision of the agreement is unenforceable or does not apply to the situation in which the agreement is being used, the inapplicable provision does not affect the validity of the rest of the agreement.

Relationships

States the parties bound by the contract are in no way partners, existing as a joint venture, or an employee(s) of each other.

Integration

Asserts that the agreement overrules any and all other agreements entered into by the parties. This cannot be changed unless by written signature of all involved parties.

Waiver

The purpose of the waiver clause is to protect a party’s right to continue enforcing the agreement if they failed to enforce it at a prior point in time. For example, if the receiving party shares information wrongly and the disclosing party lets it slide (or doesn’t realize it happened), the waiver clause ensures the disclosing party can take action if the information is wrongly released again.

Governing Law

The state laws in which the contract is regulated by.

Signatures of the Parties

The part of the agreement that makes the parties obligated to adhere to the terms and conditions contained within it. All involved parties are required to sign the contract. It is highly recommended that the agreement is signed within the presence of a notary to ensure it is legally enforceable.