Non-Disclosure Agreement (NDA) Template
A non-disclosure agreement (NDA) is a legal contract used to prevent a person from disclosing learned confidential information. It is often used in business situations, where a new employee, potential investor, or partner will have access to valuable information. The form encourages businesses and individuals to cooperate without fear that shared information could later be used to undermine one’s competitive advantage.
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
Business Plan – Allows entrepreneurs and other professionals to share their business plan with investors and other businesses without fear of their idea being stolen and utilized.
Employee – Used by a company for preventing newly-hired employees or contractors from disclosing the company’s secrets.
Film (Movie) – Protects a production company from having their script, plot, cast, or similar information from being leaked to the public.
HIPAA (Non-Employee) – A HIPPA-compliant form for preventing non-employees from sharing learned information from a healthcare facility.
Mutual (Bilateral) – A contract used when companies or individuals will be sharing confidential information with each other.
Patent – Used by inventors and companies for protecting information relating to a new invention, design, idea, process, or similar trade secret.
Unilateral (1-way) – The standard NDA-type, in which one party shares information that the receiving party is required to keep confidential.
- Unilateral Agreement – In this method, only one (1) party discloses secret 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 (Mutual) 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.
A Trade Secret is a form of intellectual property that is owned by an individual or company. Trade secrets can come in the form of a method, device, technique, formula, pattern, compilation, or other means that gives the party that created or discovered it a type of competitive advantage.
- A client’s customer list
- The ingredients in WD-40
- The business plan of a startup
- Blueprints for an in-development product
- YouTube’s algorithm for showing videos
Although NDA’s may appear as a document only used for specific scenarios, they are 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 keeping their focus on the things that matter most. The following are situations which are commonly protected by the binding contracts:
- Example 1 – Hiring a Freelancer
- Example 2 – Mergers, Sales, and Acquisitions
- Example 3 – Potential Investors
- Example 4 – Hiring new employees
Freelancers allow startups and established companies to engage in both short and long-term projects that don’t warrant (or need) to involve the hiring of a full-time, salaried employee. Additionally, the specialized skills found in freelancers, the ease in which they can be hired (and fired), and their general flexibility make them incredible additions to teams. However, with their convenience comes the fact that they are ready to work for what is essentially the highest bidder means their loyalty to a single employer is questionable. Because foregoing the use of skilled freelancers for secretive projects due to the risk of information being leaked is impractical, employers can (and should) require their employees to sign an employment NDA.
When one company is planning on selling or merging their company with another, everything regarding the selling company’s structure, financial state, assets, client relationships, and every bit of confidential information that lead to the business’ success has to be shared to give the acquiring or merging company sufficient information on whether or not the decision is wise. An NDA provides a contractual barrier that restricts the illegal use of learned information from being used against them. However, companies that are considering using an NDA should use common sense before disclosing secrets, as well as properly vet the potential company, as the cost of proving breach of an NDA is not only costly, but can take an exceptional amount of time as well.
This one is tricky, as the majority of investors will not sign an NDA for the simple reason that they may 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. In short, it can’t hurt to ask investors to sign an NDA – especially if the information is exceptionally ground-breaking or damaging. Having said, expect the majority of responses to be a “no”.
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. This is especially so in a startup environment where ideas are new, competition is high, and the potential for employees striking it out on their own is a real threat. If there is even a minor risk of an employee learning a Trade Secret, when in doubt, have them sign an NDA. Doing so not only gives the company a means of suing for breach of contract – it ensures the employee knows exactly what they can and can’t share, and its a strong psychological deterrent for even contemplating the stealing of information.
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.
The following are the trade secret laws in each state (excluding New York):
The following are the answers to questions commonly asked regarding NDA’s:
- Is it possible to get around an NDA?
- What Happens if an NDA is Broken?
- What if the Learned Trade Secrets are Illegal?
In short, yes, it’s possible to get around an NDA, as long as there’s a justifiable, defensible reason for doing so. For those that are trying to get out of an NDA, start by going through the points below. If any hold true, there is a good chance the NDA can be exited legally:
1. There’s no consideration
In contract law, consideration is the benefit each party receives for upholding their end of the contract. For a contract to be valid, each party must receive something from the other in exchange for signing the document.
- The consideration the disclosing party receives is in the other party keeping the information safe.
- The consideration the receiving party receives can vary, but can involve employment (if signed at the start of work) or financial compensation (if hiring a contractor). If an employee is hired, and then asked to sign an NDA later into their employment, they MUST be provided additional consideration. This can come in the form of an employee bonus or additional benefits. If no consideration was provided, this is a viable reason to get out of the NDA.
2. There was a breach of contract
Without being apparent at first, the other party to the agreement may have already broken the contract themselves.
For unilateral (one-way) NDAs, the disclosing party cannot “break” the NDA so long they have provided consideration and upheld their requirements as stated in the contract.
However, for bilateral (two-way) NDAs, in which both parties agreed to keep information they learned from each other private, if one party breaches the contract by sharing information with an outside party, it can be reasonable to assume the other party can now share the learned information without repercussion.
3. The NDA is overly-restricting
For unilateral (one-way) NDAs, the disclosing entity cannot use the agreement to restrict the receiving party’s ability to find work with a new employer.
As an example, suppose ABC company required a salaried employee to sign an NDA upon first being hired. The contract included clauses that were exceptionally broad and all-encompassing. Later on, the employee left to work for a new employer. Worried their employee would disclose information that could be used against them, the previous employer threatens to sue claiming a breach of contract.
It is safe to assume the contract is not valid, as 1) contracts that include broad, vague terms rarely hold up in a court of law, and 2), NDAs solely focus on restricting information from being shared with third parties – they do NOT operate as Non-Compete Agreements.
4. There’s a termination clause
The best-case scenario is that the NDA contains a clause specifying the contract’s end-date (often called the “Term of Confidentiality” or “Early-Termination”). The clause is a short paragraph that establishes what must occur in order for the parties to terminate the contract. Alternatively, it could state the length of time (typically 1 to 5 years) that must pass before the NDA is terminated on its own. An example of an early-termination clause is the following:
“Termination. This Agreement shall come into force when duly signed by both parties and shall continue for a period of five (5) years. If either party decides not to continue to be involved in the purpose with the other party it shall notify the other party in writing and this agreement will terminate with immediate effect.”
On the agreement’s expiration, it will be assumed that the receiving party no longer has an obligation to keep their learned information a secret.
Breach of contract may or may not bring about serious financial and legal consequences depending on the severity of the breach, the leniency of the other party(s), whether there was actual misappropriation, and/or if the party that breached the contract was intent on causing harm. The best-case scenario (for the party learning the confidential information) is that the other party acknowledges that the information is no longer a threat if publicized, and agrees to dissolve the contract.
The worst-case? The party that breaches the contract can face being sued, being arrested if the trade secrets were stolen maliciously, faced with copyright infringement, and other serious repercussions. When drafting an NDA, it’s important that the parties include a remedies clause in the agreement that covers indemnification (a fancy word for receiving compensation) that results in the case misappropriation were to occur. An example of a remedies clause is the following:
Remedies. Each party recognizes and agrees that in the event of a breach or threatened breach of a party’s obligations, irreparable damage may be caused to the non-breaching party for which monetary damages alone would not adequately compensate such party. Therefore, each party agrees that, in addition to all other remedies available at law or in equity, the non-breaching party is entitled to seek an injunction or other equitable relief for the enforcement of any such obligation.
Note: The above clause is only a sample of what one should look like – hiring a qualified attorney to create a remedies clause for the specific situation surrounding the NDA is highly recommended.
NDAs cannot be used to cover-up illegal activities. For example, suppose an individual “John” is required to sign an NDA that restricts him from sharing information regarding the manufacturing or assembling of a line of children’s toys. However, after a year of working for the company manufacturing the toys, John discovers that the toys contain several ingredients that are illegal due to their cancerous properties. John wants to disclose said information, but fear he will be sued for breach of contract.
In this situation, John has immunity from liability so long he 1) discloses the illegal information in secret to a government official or a licensed attorney, 2) seals the official complaint in a lawsuit or other similar proceeding, or 3) is arguing the fraudulent company committed retaliation, and are disclosing the information to an attorney or while in court-proceedings.
It’s important that John makes a valid effort of protecting the company’s trade secrets while disclosing the suspected illegality of the situation. The law that protects whistleblowers that are bound by NDA is the Defend Trade Secrets Act (DTSA).
…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.
Before going about editing or drafting an NDA from scratch, it’s important to have a clear understanding of all the terms and conditions that are both required and optional. It’s important to note that 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
This section establishes who the entities exchanging information are. 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.
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.
States the parties bound by the contract are in no way partners, existing as a joint venture, or an employee(s) of each other.
Asserts that the agreement overrules any and all other agreements entered into by the parties. This cannot be changed unless the parties unanimously sign to terminate the clause/agreement.
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.
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.