Businesses often possess sensitive information that gives them a competitive edge. This information is worth protecting. If it’s leaked, it could damage the business’s bottom line, competitive advantage, or reputation. That’s why it’s vital companies protect their secrets with NDAs.
What does NDA mean? It stands for ” non-disclosure agreement .” NDAs are used whenever an organization needs to share confidential information with another party. This can include hiring new employees or entering a new business partnership.
What is an NDA contract? Keep reading to learn everything you need to know.
What is a Non-Disclosure Agreement (NDA)?
An NDA is a legally binding confidentiality agreement, or non-disclosure agreement, that requires that one or both signing parties do not disclose confidential information to other sources.
What does ” do not disclose” mean? It means that the signer can’t share or allow the information to be shared with anyone who doesn’t already know it.
Confidential items that an NDA can cover include:
- proprietary systems (like in-house software)
- internal data (like financial reports or business relationships)
- trade secrets (like food recipes)
If you breach an NDA, you could face serious legal consequences. Pay special attention to the terms before you sign an NDA.
There’s no legal distinction between a confidentiality agreement and an NDA agreement. The term used for a contract depends on where you live and the preferences of the parties involved.
What Is the Purpose of an NDA?
In general, there are three separate categories when you look at the purpose of an NDA. You can use an NDA when you want to protect certain information from being disclosed or if you want to protect secrets related to a pending patent. With an NDA, you can clearly specify when that specific information can or cannot be shared. Using an NDA template can help you ensure you do not miss anything.
The main purpose of a non-disclosure agreement is as follows:
- Specify Protected Information: The first job of a non-disclosure agreement is to clearly specify the information that can and cannot be shared. Information should be classified clearly, making it easy for everyone to work within the boundaries of the agreement.
- Protect Confidential Information: Once the non-disclosure agreement has been signed, there is a legal obligation for all parties involved to keep sensitive information confidential. If any information is disclosed by any of the parties involved, it could be considered a breach of contract. The NDA might also specify penalties that take place if someone breaches the terms of the NDA.
- Guard Patent Rights: If there is an invention in the works, public disclosure could void the right of the patent, as it might be hard to prove where the original information for the patent came from. Therefore, a strong NDA could protect an inventor as they work to bring their idea to life.
How Does an NDA Work?
NDAs work by legally binding two or more parties to specific confidentiality obligations. The NDA contract lists the confidential information that the receiving party must keep secret and lays out the terms and conditions that both parties must follow.
An NDA will also specify how long the information must be kept secret. Some NDAs can last indefinitely, requiring the signer to keep the secret forever.
Many NDAs will also include a non-disclosure clause that explains the penalties for breaching the contract. These penalties may be specific monetary damages or even criminal charges.
Types of NDAs
There are several types of NDA to know. You need to make sure you use the right type of NDA in the right situation to ensure your NDA is legally enforceable and does not have any loopholes. Some of the most common types of non-disclosure agreement examples to consider include:
Non-Mutual NDAs
This is also called a unilateral non-disclosure agreement or a one-sided non-disclosure agreement. In this situation, one party is disclosing confidential information to the other party, and the party receiving the information is generally required to sign a confidentiality agreement. For example, if a company is disclosing information about its suppliers, prices, and trade agreements to its employees, the employees might be asked to sign a non-disclosure agreement. The same thing can take place if an inventor is disclosing his or her information to an evaluator.
Mutual NDAs
A mutual non-disclosure agreement is also called a bilateral non-disclosure agreement or a two-way NDA. In this situation, there are two parties disclosing confidential information to each other, and the agreement will limit the extent to which the other party can share information they receive during the agreement. This type of non-disclosure agreement is commonly used if there are two businesses negotiating a business deal. A few examples include corporate takeovers, mergers and acquisitions, and joint ventures. Confidential information might have to be disclosed to come to an agreement, but parties are not allowed to disclose the information they receive from the other party during the negotiating process.
Multilateral NDA
If there are three or more parties involved in a discussion, then it becomes a multilateral non-disclosure agreement. It can also be called a multi-party non-disclosure agreement. It is possible that there could be multiple non-disclosure agreements signed in this process. For example, company 1 might sign a unilateral NDA with company 2, and then company 2 might sign a bilateral NDA with company 3. These types of non-disclosure agreements are typically reserved for deals that require a tremendous amount of negotiation. The agreements have to be very specific with regard to the parties involved and the information they are allowed (or not allowed) to share.
Key Elements of a Non-Disclosure Agreement
When developing a non-disclosure agreement, it is important to ensure that the most important elements are present. When developing a non-disclosure agreement, it is beneficial to use an NDA that already has all of these sections. That way, you can make sure you don’t miss anything when you are drawing up your agreement.
Some of the most important elements to include in your non-disclosure agreement template include:
- What Is Confidential: First, the non-disclosure agreement must clearly specify which information is deemed confidential. This can vary from agreement to agreement, and the parties must have a clear understanding regarding which information is protected.
- Identify the Parties: The agreement also has to specify the party’s signing the agreement itself. These could be individuals, companies, or organizations, depending on the nature of the agreement.
- The Scope of the Confidentiality Obligation: The scope of the confidentiality agreement must specify the enforceability of the agreement itself. What information is protected by the agreement? What happens if the information is shared after the agreement has been signed? It should lay out the consequences for breaching the agreement itself.
- The Exclusions From the Confidentiality Agreement: This section will specify the types of information that do not need to be kept confidential. For example, previously disclosed details and public knowledge generally do not need to be protected by a confidentiality agreement. Information that someone brings with them into the negotiation about the other party is generally not confidential either.
- The Term of the Agreement: There might be some terms included in the agreement as well. For example, this could include severability, change in control, and exclusions of damage that might need to be specified.
- The Duration of the Agreement: The non-disclosure agreement also has to clearly specify how long the agreement is going to last. It is typically quantified in terms of years, and there are some confidentiality agreements that could be considered indefinite.
- Other Miscellaneous Provisions: There are several other miscellaneous provisions that might need to be included in the agreement. For example, parties might need to return sensitive information to the other party before the agreement is signed. There might also need to be a section on remedies if there is a breach of the confidentiality agreement itself.
Additional Provisions of an NDA
There are several other provisions that might have to be included in the NDA as well, depending on the nature of the agreement. Having these provisions can help you make sure that your NDA is airtight, clear, and comprehensive. Some of these provisions include:
- Employee Solicitation: Some non-disclosure agreements clearly specify that employees of the other party cannot be solicited for a change in employment for a certain amount of time after the agreement is shared. For example, company A is not allowed to try to hire employees from company B for at least one year after the agreement has been signed.
- Jurisdiction in a Dispute: If there is a dispute down the road related to the non-disclosure agreement, where is the case going to be heard? The non-disclosure agreement should specify where cases are heard in the event of a dispute related to the non-disclosure agreement.
- No Rights in the Receiving Party: The non-disclosure agreement may also specify what the receiving party is able to do with the confidential information they receive. For example, the receiving party might not be allowed to use the confidential information for any purpose other than evaluating the possible business deal that is about to take place.
Potential Problems With an NDA
The biggest potential problems with NDA templates lead to the same issue: They make the contract unenforceable. If a non-disclosure agreement template isn’t enforceable, it’s like you don’t have an agreement at all.
Reasons an NDA agreement template may not be enforceable include:
- The parties aren’t named correctly.
- The definition of confidential information is unclear or nonspecific.
- The scope of the NDA template is unreasonable.
- The confidential information is public domain or otherwise available to the signer already.
- The NDA wasn’t signed by a representative with sufficient authority.
NDA FAQs
Can an NDA be terminated?
An NDA can be terminated for a variety of reasons, and there are a few common situations to know. For example, non-disclosure agreements will automatically terminate when the duration of the agreement expires. It is also possible for someone to get out of a non-disclosure agreement if they are able to follow the instructions of the termination clause. Before you sign a non-disclosure agreement, it is important for you to take a look at the wording of the contract. That way, you understand exactly what you are and are not allowed to share. There are also some situations where a non-disclosure agreement could be deemed unenforceable, but this generally requires the intervention of the court system.
Should employees sign NDAs in employment contracts?
There are situations where you might be required to sign an NDA. For example, if you are being moved to another department, you might be required to sign a non-disclosure agreement protecting the secrets of the company. You might also be required to sign an NDA if you want to get hired by that company. Before you sign an NDA, it is important to take a look at what the agreement is protecting. If you are comfortable shielding that information from the public, then you should feel comfortable signing the NDA.
Does GDPR impact on non-disclosure agreements?
There is some impact that GDPR has on non-disclosure agreements. For example, under GDPR, there are some very strict personal data protections in place. It is important for all organizations to make sure they comply with the rules and regulations of GDPR to avoid significant fines and sanctions. On the other hand, if you believe that you will need additional protection above and beyond what is included in GDPR, then you may need to have a non-disclosure agreement drawn up. This is another situation where having a template available can be beneficial.
What happens if you break an NDA?
If you breach your NDA contract, you will usually be responsible for monetary damages to the organization whose information you leaked. These damages are typically set as the amount of money the company lost because of the leak. You may even face criminal penalties if the NDA was related to government activity.
Is an NDA legally binding?
Yes, NDAs are legally binding once both parties sign them. A signed NDA is only considered not legally binding if it’s not enforceable for some reason.
Is it safe to sign an NDA?
As long as you read and agree to the terms of an NDA, then it’s safe to sign. The only thing NDA agreements cover is keeping particular confidential information secret. Just make sure that the non-disclosure agreement doesn’t include clauses that cover things other than confidentiality.
Is an NDA a contract?
Yes, an NDA is a contract where two or more parties agree to specific confidentiality terms. NDA stands for non-disclosure agreement, and “agreement” is another word for “contract.”
What does an NDA mean in shipping?
Sometimes, a shipping NDA is a non-disclosure agreement, meaning that a shipping company is bound to keep certain information confidential. More commonly, NDA in shipping stands for “next day air,” meaning that the shipping company will deliver an item by the next day with the help of a plane.
How much does it cost to produce a Non-Disclosure Agreement?
It costs nothing to type up a template of a non-disclosure agreement by yourself, and a downloadable template for NDAs from Legal Templates is free.
Where to get an NDA?
Protecting your confidential information is essential to keeping your business safe. Get your free non-disclosure agreement template to get started.
How to send a Non-Disclosure Agreement?
NDA templates can come in many formats. However, the best formats are PDF or printed documents. Both make sending NDAs easy. Signing an NDA means that the contract is legally binding, so it’s critical to send NDAs in a format that can’t be changed after it’s received.
If you want to write or edit a non-disclosure agreement template, Word is a great solution, since documents created in this format can be printed or converted to PDF easily. You can download the Legal Templates NDA template here to edit it and print or convert it to your preferred format.
Do I need to write an NDA? What happens if I don’t?
You never need to write an NDA, but it’s frequently a good idea. Whenever you’re preparing to share sensitive information with a new business or person, the NDA protects your company. Anyone who breaks the NDA knows they will face legal consequences, so there’s significantly less risk they will leak your information.
If you don’t learn how to create NDAs, you face problems. Without an NDA, you have no basis for taking legal action if someone reveals confidential data. You can’t prove that the other person promised to keep the information secret or that they agreed to face penalties otherwise. Basically, without an NDA, your company can lose control of sensitive or valuable information and have no way to recover.
When is a Non-Disclosure Agreement most commonly used?
There are several everyday situations where NDAs are used. A business will put together a template for NDAs when seeking new investors, looking for business partners, securing new clients, or hiring new employees.
