An employee non-disclosure agreement (NDA), or employee confidentiality agreement as it’s also known, is common in business today, especially in industries where there might be proprietary information or trade secrets. There are different types of confidentiality agreements for various business purposes. Here, we’ll discuss the employee non-disclosure agreement.
A company often asks employees with advanced knowledge of their confidential information to sign an NDA. Some companies make this agreement standard for all employees. This means the employee agrees not to use or make public information learned while working through the company.
This contract specifies the type of information which cannot be disclosed. This allows employees to understand better the information it would be detrimental to share. Trade secrets are protected, but employees might not realize that mailing lists and other client information are protected.
Before issuing an employment offer letter, many companies require their candidates to provide an employment verification letter with supporting proof of income documents.
- What is an Employee Non-Disclosure Agreement?
- Parts of an Employee Non-Disclosure Agreement
- What Does an Employee NDA Protect?
- Consequences of Not Having an Employee Non-Disclosure Agreement
- How to Write an Employee NDA?
- Employee Non-Disclosure Agreement Sample
- Most Common Uses for an Employee NDA Form
- Employee NDA FAQs
What is an Employee Non-Disclosure Agreement?
An employee non-disclosure agreement is a contractual agreement between an employee and an employer to protect sensitive information. Employers typically use an employee NDA as part of the onboarding process for new employees to protect trade secrets and business practices before they start working for the company.
An employee non-disclosure agreement details that an employee may not disclose your trade secrets without permission.
Employee Non-Disclosure Agreement vs. Non-Compete Agreement
Both employee NDAs and non-compete agreements are contracts between an employer and an employee, but they have different purposes. The purpose of an employee NDA is to legally bind the employee to the secrecy of a company’s confidential information or trade secrets. While a non-compete agreement sets out a period of time when the employee cannot work for a competing company, typically after terminating an employment contract.
Parts of an Employee Non-Disclosure Agreement
Your Employee NDA should include the following information:
- The Parties: The contract should specify the company and the employee entering the contract.
- Information: The information and trade secrets the NDA protects should be well-defined.
- Time Frame: The duration that the contract is enforceable needs to be spelled out.
- Non-Compete Clause: This clause specifies an amount of time in which the employee cannot directly compete with your company after terminating the relationship.
- Non-Solicitation Clause: This clause dictates that employees cannot be solicited away from the company for another enterprise.
- Remedies: This section indicates remedies if the contract is breached.
- Notice: Because you’re dealing with proprietary information, you should include a section indicating how notice should be made if the employee discovers a breach in information, e.g., if the employee’s computer was hacked.
It is important to note that courts are reluctant to enforce broad non-compete clauses in employment contracts. To increase the likelihood that it can be enforced, your non-compete clause should be very narrow and as specific as possible regarding position, industry, and region.
An employee confidentiality agreement protects your interests while laying out the type of privacy your company information needs. These are becoming more and more standard in business, and many employees sign them as a term of employment. However, employees should still ask themselves if they should sign an NDA.
What Does an Employee NDA Protect?
There is some information that an NDA cannot protect; however, information that an employee NDA can protect includes:
- Business and marketing strategies
- Formulas and recipes
- Product plans
- Processes
- Computer software
- Vendor and customer lists
- Financial information
- Source code
- Intellectual property
Confidential information and trade secrets cannot be protected if it is public knowledge or is easily obtainable from other sources.
Consequences of Not Having an Employee Non-Disclosure Agreement
The consequences of not having an employee NDA can vary. It often depends on the type of industry and business model. It was once standard that businesses expected their employees to behave ethically. Believing in someone’s good nature might be more congenial in your personal life, but it’s not an effective strategy to protect your business.
If an employee is not bound by an employee NDA, they can use the information they’ve learned through your company in a variety of ways that can damage your reputation or impair your ability to compete in the marketplace.
Some consequences might include the following:
Using Proprietary Knowledge to Gain Employment Elsewhere:
Many employees change jobs frequently. Without an NDA, your employee can use proprietary knowledge of your company to secure employment with a competitor. This also means your competition will have inside knowledge of your company.
Opening Their Own Enterprise Using Your Information:
An employee could open their own business, taking customers and connections they’ve met through your business with them. They may even hire away some of your employees.
Using Client Information:
Employees could take client information, such as mailing lists, and use it in their future ventures. This might put you at risk legally or damage your relationship with clients.
Making Public Information That Damages Your Ability to Compete:
An employee could make intimate knowledge of your company public through interviews or social media—although you should try to cover this in your social media policy. This might include information that would damage your marketing position.
How to Write an Employee NDA?
To write an Employee NDA, you should follow the below steps:
Step 1 – Initial Details
Start with the date the agreement is being entered into and the name of the employer and employee. Then include the position of the employee.
Step 2 – The Confidential Information
Next, you need to detail the information the employee NDA will protect. Whether it’s all information the company shares, only information marked ‘confidential,’ or specific information such as accounting information or marketing and sales plans.
Step 3 – Obligation to Maintain Confidentiality
You need to detail whether the confidential information still needs to be protected indefinitely once the employee’s employment contract is terminated or if the NDA will remain in effect until a specific date or period of time.
Step 4 – Non-Compete and Non-Solicitation
If you want to include a non-compete clause, outline whether it is only during the time that the employee works for the company or whether it’s from signing until a specific date. Do the same for a non-solicitation clause if you need to include one too.
Step 5 – Termination
Outline under what terms the NDA can terminate earlier, such as upon written agreement of both parties or the cessation of the employee’s employment.
Employee Non-Disclosure Agreement Sample
Below you can see what a standard employee non-disclosure agreement looks like:
Most Common Uses for an Employee NDA Form
In its basic form, an employee confidentiality agreement lets the employee know they can’t discuss information learned through your business outside of the office. There are clauses that can be included in your NDA to make it more robust to protect your interests.
Some common considerations when drawing up this contract for employees to sign include:
- Setting the Parameters on the Type of Information: Your NDA can spell out exactly which information an employee should not expose outside of their work with your company. This section can be very detailed to verify that employees understand – one issue is that they sometimes don’t realize how much information is included. This section can also be broadly written to allow for future data types.
- Protects New Developments: If your company is working on a patent or other sensitive information, such as a publication through another entity, disclosure can effectively damage your ability to secure the deal. This contract can help you mitigate those circumstances and save your ability to continue with the patent or other type of development.
You might also include a Non-Compete clause in your NDA. This clause lists a time frame when current employees could not enter into direct competition with your company. Commonly, you would include a 1- or 2-year period where past employees could not work for a direct competitor through direct hire or contract. They also could not open their own company in direct competition with your own.
Employee NDA FAQs
Why should you use an Employee Non-Disclosure Agreement?
Many times, there are legal consequences for employees disclosing trade secrets and other confidential information, even without an NDA. However, if your employee has signed an NDA, you have additional legal actions available that may be easier to pursue, like action for breach of contract for violating the non-disclosure agreement.
The NDA can also serve as a guide for the employee to outline expectations regarding what information should be protected and how to protect that information so that you can adequately manage employee expectations and hopefully avoid a serious breach or future legal action.
When are non-disclosure agreements signed by employees enforceable?
When non-disclosure agreements signed by employers are enforceable depends on your company’s state. State laws vary from state to state regarding employee NDAs, but most agreements may be enforceable if drafted and executed correctly. Also, for the non-disclosure to be legally valid, some form of consideration must be involved, like the employee being employed by the employer in exchange for the employee’s agreement under the NDA not to disclose confidential information or trade secrets of the business.
When are non-disclosure agreements signed by employees unenforceable?
This varies from state to state due to state laws, but employee NDAs can be unenforceable for several reasons, such as:
- The language is too broad – If the employee NDA is too broad or restrictive, the courts could deem it unenforceable, particularly if it’s not limited in duration or scope.
- The information is public knowledge – if the information a company is trying to protect is widely disclosed or public knowledge, then it’s unlikely the NDA will hold up in court.
- The NDA is protecting something illegal – If the agreement requires the employee to do something illegal, such as remaining silent about some illegal activity, the NDA won’t be enforceable.
What happens if a confidentiality agreement is breached?
If a confidentiality agreement is breached, the violator could be taken to court and could result in having to pay financial damages as well as legal costs. Typically, the breaching party must reimburse the other party for any losses caused by violating the confidentiality agreement. It can be hard to know what to do if someone breaks your NDA, but there are some steps you can take following a breach;
- Investigate and gather evidence
- Consult with your attorney
- Take legal action
How long does a confidentiality agreement last?
A confidentiality agreement lasts as long as the disclosing party requires the information to be confidential. Typically, they last between one and five years but can be as long as required.
What information is not confidential?
Information that is not confidential is typically anything that is known publicly. Information that the other party already has access to before signing the agreement, information that has been received by reverse engineering, and information required to be disclosed by a court of competent jurisdiction or government agency are further examples of information that is not confidential.
When Do I Need an Employee Non-Disclosure Agreement?
It’s ideal to have an employee NDA signed upon hiring a new employee. In many cases, it is contained within a standard employment contract.
These contracts are enforceable because they meet set criteria:
- Terms of Contract: The terms of the contract are laid out so that the employee can see what standards they agree to uphold.
- Agreement of Contract: The employee agrees to the terms of the contract.
- Payment or Considerations: Some value must be exchanged to bind a contract. When hiring a new employee, the position and salary serve as considerations.
Some companies may not have all employees sign an NDA. In this case, the employee confidentiality agreement might be drawn up to be signed by employees when they are promoted to a position where one is deemed necessary. Payment should still be attached to these agreements, even when a current employee is asked to sign. Payment might include a raise or some form of bonus.