What is a Non-Disclosure Agreement?

A non-disclosure agreement (NDA) is a binding contract that requires an individual or company, known as the “Recipient”, to withhold confidential information from being released to any 3rd party or becoming public. This type of agreement is common in workplaces when a company is fearful that an employee may leave and work for a competitor and share the trade secrets they’ve obtained. In the event a former employee shares a former company’s trade secrets, or any Recipient that shares proprietary information, that breaches a signed non-disclosure agreement he or she will be liable for damages which usually means being sued by the former company for a lot of money.

NDA’s By Type

Table of Contents

NDA’s By State

Definitions (Terms)

Company – In most agreements, the “Company” is the entity that is sharing the information with the third (3rd) party, known as the Recipient.

Confidential Information – Also referred to as “proprietary information” which are any details, facts, figures, or any type of data that is not meant to be shared with a third (3rd) party or the general public. This is specific to each agreement and defined by its creator.

Exclusions – Information shall not be deemed confidential if the information was:

  • known before it being disclosed;
  • becomes public through no wrongful act;
  • received through a third (3rd) party that is not subject to any non-disclosure; or
  • approved for release by the owner of the information.

Injunctive Relief – A court order that is granted when, in relation to NDA’s, a party is disclosing confidential information without the permission or consent of the owner. This requires the releasor to immediately stop sharing such information.

Misappropriation (Federal definition found here 18 U.S. Code § 1839(5)) – The sharing of confidential information that should not be divulged. If any party that has been

Parties – Collectively the participants in the agreement.

Proprietary Information – Also known as “confidential information”, which are details about a product or service where, if released to a third (3rd) party, would be harmful to the owner.

Recipient – The party that is receiving the trade secret or is responsible for keeping the proprietary information confidential.

Severability – If any sentence, clause, or paragraph is not legally acceptable it shall not affect the rest of the agreement.

Time-Period – The most common is five (5) years but can be any amount of time as agreed to by the parties.

Trade Secret (Federal definition found here 18 U.S. Code § 1839(3)) – Information that is held by a business that gives them a competitive edge over the competition in their particular product or service niche.

Non-Disclosure vs Non-Compete

Non-Disclosure Agreement (NDA) – The employee cannot to reveal trade secrets to any third (3rd) party but is allowed to work for any competitor or related employer.

Non-Compete Agreement – The employee cannot to reveal trade secrets to any third (3rd) party and is NOT allowed to work for any competitor or related employer.

Furthermore, a non-disclosure is more beneficial as more across the country are not allowing non-competes to be considered legal. For example, California (January 1, 2017) has banned non-compete agreements and Alabama has done so as well, although with exceptions, and the trend seems to be moving in this direction. Therefore, it is best to write a non-disclosure and, if the State allows, write a clause that prevents the employee from working for specific competitors.

Unilateral NDA vs Mutual NDA

Unilateral – An agreement where only one (1) party is liable for keeping the confidential information or proprietary information a secret from any third (3rd) party (the “Recipient”). The disclosing party is allowed to reveal any of the of the information to a third (3rd) party without violating the agreement.

Bilateral – Both parties will be held liable to each other if any of them should release the confidential information to a third (3rd) party. This is common if, for example, two (2) individuals are to go into business together on a product and want to keep the software or technology secret from the public.

Violation (Breach) of NDA

If a individual or company has violated a non-disclosure agreement by way of revealing information to a third (3rd) party then the disclosing party shall have rights under their respective State and federal laws (if applicable) to hold them accountable. The party that was harmed may be able to seek monetary damages based on what was released and amount of damage it brought against them.

In an attempt to stop the releasor from spreading any more of the information to the public, a Cease and Desist Letter should be sent via certified mail immediately.

How to Write

Writing a non-disclosure agreement is no different than most legal forms where it is always recommended to have an attorney review the document. Nevertheless, anyone can create and sign their own agreement by using one of the many templates available on this website.

From the movie Wall Street (1987)

Step 1 – Choose Your Form

Select from the Types of NDA’s.

This will allow you to create a custom document that is structured to the needs of the information you are attempting to protect.

Step 2 – Establish the Confidential Information

Review the agreement and read specifically how “confidential information” is defined. This is the most important part of the contract as if you would like to add anything that is not included, for example, bank statements, tax returns, software development, etc. it will need to be added or else it is not considered protected.

In many of these agreements confidential information will be anything that is forwarded to the Receiving Party that has the heading of “Confidential” on the document.

Step 3 – Time-Period of Agreement

Some agreements will attempt at making the information that is disclosed to never be allowed to be revealed to a third (3rd) party which is not allowed in many States. The standard amount of time is five (5) years which, in regards to the tech industry, is a long period of time.

The creator of the document is able to write any time-frame they should so choose and if they would like to have the information be kept confidential “in perpetuity” they have every right to do so.

Step 4 – Gather the Parties

After the form has been agreed to by both parties they should get together to sign the document. For more serious agreements, both parties should agree to meet and sign in the presence of a *notary public.

Signing in front of a notary guarantees the document’s authorization as the identification of the parties will be authenticated by a legal third (3rd) party witness. There should be at least two (2) copies signed and notarized so that each will have an executed agreement.

*A notary public can be found at all financial institutions (bank or credit union) in the United States. If you don’t have a bank account with the selected institution they may charge a small fee for conducting the service.

Step 5 – Share the Information

Once the form has been signed it is now safe for one (1) or both the parties to begin sharing the information knowing that they are legally protected. An NDA is recommended to be used with companies that are hiring employees that will be working with sensitive information.

NDA Laws

Defend Trade Secrets Act (DTSA) – Enacted May 11, 2016, Public Law 114-153 and Federal Statute 18 U.S. Code § 1836, allows for an owner of a trade secret or proprietary service to be protected if it is used in more than one (1) State. The protected owner is able to make a filing in the District Court, rather than file on a State-by-State basis in order to stop the use and seek damages.

Laws By State