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You might think of non-disclosure agreements only in terms of big-name executives, presidential hookups, and Hollywood stars, but ordinary employees are asked to sign NDAs every day.
And if you’ve ever been asked to keep a secret, then you already have experience with the spirit of non-disclosure agreements.
Just as individuals have secrets to keep, so do companies. This article will cover the elements of a non-disclosure agreement, discuss circumstances where you may be asked to sign one, and address the enforcement of NDAs.
What Is a Non-Disclosure Agreement?
A non-disclosure agreement (NDA) is a contract between two or more parties that establishes the confidentiality of certain protected information.
In the context of business, an employer will ask an employee to sign an NDA to protect proprietary information or trade secrets that the company wishes to remain private.
The information protected under an NDA is up to the employer, but typically NDAs include restrictions like client or product information, plans for marketing or sales campaigns, and specialized processes.
Basically, if the information has value to both the company and its competitors, an employer will want it covered by an NDA.
In fact, for an NDA to be enforceable, it must protect confidential, valuable information. NDAs typically last for the duration of an employee’s time at a company and extend beyond their termination for some period as well.
NDAs cannot cover knowledge that is already in the public domain (or becomes public in the course of your work).
The information you receive outside the context of work (from a third-party) or any information the employer consents for the employee to disclose is not confidential.
There are three types of NDA:
Unilateral. Most NDAs are unilateral, which means that one party (the employee, in this context) agrees not to reveal confidential information.
Mutual. Mutual NDAs stipulate that both parties must keep corporate secrets under wraps. These are more common in a business-to-business relationship.
For instance, if a manufacturer produces a part based on a company’s design, both the manufacturer and the company would be prevented from divulging any unique trade secrets that revolve around that part’s production.
Multilateral. Multilateral NDAs involve more than two parties and restrict one or more parties from divulging classified information.
When Are Non-Disclosure Agreements Signed?
Both parties must receive something of value for any contract; otherwise, it’s just a gift. In the case of signing an NDA for a job, the employee’s “consideration” (what they get out of it) is the job itself.
It could also be that your interviewer wants to discuss non-public issues the company is facing (and wouldn’t want their competitors to learn) or that trade secrets may arise in the course of your conversation.
The above scenario probably won’t happen for most jobs. However, if you’re gunning for a senior-level position, it’s almost impossible for a company to discuss pertinent matters without getting into some confidential information.
Another case where a company may ask someone to sign an NDA involves third-parties closely related to the company.
For instance, if a contractor, consultant, or vendor will gain some level of corporate access through their relationship, the company may wish to protect that confidential information with an NDA.
Start-ups (or any companies) may also want investors or venture capitalists to sign an NDA before pitching their idea.
Key Elements of Your Non-Disclosure Agreement
Now that we know what a non-disclosure agreement is, it’s important to go over some of the key elements of NDAs:
Who the parties are. Kind of essential – an NDA should explicitly state the parties involved. The disclosing party is the one providing confidential information (the employer), and the receiving party is simply referred to as “the recipient” (the employee).
What is confidential. The agreement must spell out, in detail, what information is considered confidential.
NDAs cannot be blanket statements that prevent you from discussing anything about your experience at work. As previously noted, they must cover information that is valuable in some way.
What isn’t confidential. It’s harder for contract language to be precise here because there’s a whole bunch of information you’ll learn at work that isn’t classified. Typically, this section will discuss circumstances where it’s okay to divulge information that’s usually classified.
For instance, if you need to comply with a legal or financial body, you may need to divulge information that is ordinarily confidential.
Time frame. NDAs can’t last forever, and your contract should spell out the exact time frame that your agreement is valid.
Suppose your NDA is part of an employment contract. In that case, the time frame is usually the duration of your employment, plus a little time after your termination to prevent you from taking trade secrets to a competitor right away.
Other obligations. Besides keeping certain information secret, an NDA may provide stipulations for how to handle confidential information. For example, the agreement may stipulate that the employee destroys or returns classified documents after using them.
Other terms. The fine print part of your contract may include things like rules for modifying the agreement and the arbitration process.
Clause that allows for disclosure. NDAs should offer the disclosing party (the employer) the option to allow the recipient (the employee) to divulge otherwise confidential information under certain conditions.
The above elements are all pretty harmless and basic. Other things to look out for include:
All three are pretty standard elements of an employment contract, so don’t be perturbed if you see a language that prevents you from working for a competitor after leaving your current company.
Still, be aware of this potential stipulation as you review your employment contract.
Non-solicitation. A contract may prevent you from soliciting former coworkers or employees to join you at a new company. This should be a separate clause from the NDA.
Jurisdiction. If a dispute emerges, where will it be resolved?
Injunction. An injunction is a clause that allows the disclosing party to get a court order to stop the recipient from disclosing confidential information.
In other words, if the employer knows you plan to breach the agreement, they can proactively go to court and stop you from doing so.
Trial forfeiture. An NDA may state that you waive your right to a trial if any issues arise.
Non-mutuality. Some NDAs will include language that explicitly states that the recipient has no rights vis-a-vis confidentiality. This just confirms that the agreement is unilateral rather than mutual.
Who owns what. Some contracts will state that any ideas you have during your employment are automatically the company’s property. In other words, you would be restricted from disclosing your own ideas because they’re not technically yours anymore.
While the above elements may sound a bit nefarious, they are all fairly standard. Never sign something you’re uncomfortable with. If you have questions, ask your employer or contact a labor lawyer for further clarification.
Enforcement of Non-Disclosure Agreements
When enforcing a non-disclosure agreement, a company has the burden of proving that its employee breached the contract and that breach resulted in injury.
If an NDA is found to be unenforceable, then other NDAs the company had employees signed might also be called into question.
There are many reasons why an NDA could be deemed unenforceable by a court. Below are a few examples:
Too broad. An NDA has to be reasonable in the terms it lays out. “Reasonable” is a fluid term that depends on the jurisdiction in which you reside. An NDA that is considered too broad or burdensome for the recipient can be thrown out or altered by the court.
No consideration. As we alluded to before, contracts must give both parties something. In the case of an employment contract, the consideration is the job itself. If you’re being terminated, you should be compensated for signing an NDA with a severance package.
Disclosing party didn’t maintain secrecy. If the company fails to take reasonable steps to maintain certain information confidentiality, then the employee can’t be held accountable for disclosing the same information.
Information is not valuable or secret. If an employee discloses information that is either not secret or not valuable (or both), then a court isn’t likely to side with the employer.
Unquantifiable damages. It’s tricky to assign a dollar value to a breach of an NDA. That’s why many agreements will include what’s called “liquidated damages.” This means that the employee would pay a set amount for each infraction of the agreement.
Courts are unlikely to grant an injunction if liquidated damages are included in the contract’s language. Additionally, if the actual damage caused is far less than the liquidated damages lays out, then a court may change the amount as appropriate.
These are just a few examples of the challenges that may arise upon trying to enforce an NDA. Remember that an employment attorney is your best resource for determining and understanding the specifics of your contract.
Employers like having employees sign NDAs because they benefit from keeping proprietary information under wraps. If you’re good at keeping secrets and you’re careful to follow the spirit of the agreement, you’re unlikely to run into any issues.
Companies need NDAs to remain competitive, or else every element of their business would be available to their competitors. Breaking one can result in a lawsuit.
We at Zippia are not lawyers, and this article is not legal advice. Laws are continually changing and differ by jurisdiction, so seek the advice of local legal counsel if you have further questions about your non-disclosure agreement.
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