The Basics of Non-Disclosure Agreements (NDAs)

A non-disclosure agreement, or NDA, is a legally binding document in which two parties agree to enter a confidential relationship. Non-disclosure agreements are common in business settings that involve confidential company information, as a means to ensure employees and others don’t disclose this information to competitors. Non-disclosure agreements give corporations the power to control what information leaves the company. Before you sign a non-disclosure agreement, learn the basics of these contracts.

When Might You Encounter a Non-Disclosure Agreement?

A non-disclosure agreement is one of the most common ways to protect the integrity of confidential data or information. It might be appropriate in many scenarios, but especially if a business needs to keep something valuable – such as a secret recipe – confidential for the sake of the company. You may encounter this type of contract when entering into a business partnership, as an investor, when sharing financial information with a buyer, or while joining a company at a position in which you’ll be privy to sensitive insider secrets. They are common in many business settings in which one party needs to protect sensitive information from the public eye.

An NDA could be one- or two-sided in format. One-sided is most common, and involves one party (such as an employee) agreeing to the terms the other party sets for the professional relationship. Two-sided contracts hold both parties to certain standards of confidentiality, and is more appropriate when both sides potentially have confidential information to lose. It is up to you to read the full language of a non-disclosure agreement and decide whether to sign. Once you sign, the NDA will become a legally binding contract.

The Elements of a Non-Disclosure Agreement

The exact setup of a non-disclosure agreement will vary according to the unique needs of the person drawing up the contract; however, most have certain elements in common. Most aren’t very long or complex. However, you may want a lawyer to review your NDA before signing. That way, you’ll know exactly what your responsibilities are under the terms of the contract and can avoid breaching your side of the agreement. The basic elements of a standard non-disclosure agreement are as follows:

  • Names and contact information of both parties involved
  • Description of what information the NDA considers “confidential”
  • Description of information excluded from the contract
  • Scope of confidentiality
  • Descriptions of both parties’ obligations under the agreement
  • Term, or time period, of validity on the contract
  • Miscellaneous provisions

Some non-disclosure agreements are stand-alone documents you may receive separate from other paperwork, while others are included with other employment or contractual documents. Always read documents that require your signature carefully before signing. It’s important to fully understand your rights, responsibilities, and contractual obligations to another party. Otherwise, a breach of contract could result in serious penalties.

What If You Breach an NDA?

Non-disclosure agreements are relatively standard during the onboarding of new employees, especially at technology companies that deal with sensitive data or trade secrets. Oftentimes signing an NDA is a stipulation of employment, meaning the employer will not offer you the position if you don’t sign the non-disclosure agreement. If you do sign, take your responsibilities seriously. Breaking the terms of an NDA is a breach of contract.

If you breach a non-disclosure agreement in a way that causes trouble or losses for your company, you may find yourself in the defendant’s chair during a civil lawsuit. You could be liable for damages that your breach of contract caused, such as a loss in business. However, your employer would have to prove that you acted outside the terms of the contract and that your actions were the proximate cause of damages. Contact a skilled attorney if you have any questions about non-disclosure agreements or potential breaches.