Legally Binding Non Disclosure Agreement
A legally binding non disclosure agreement (NDA) obliges a party to keep certain information confidential or face legal consequences.4 min read
A legally binding non disclosure agreement (NDA) obliges a party to keep certain information confidential or face legal consequences. Protected information in an NDA can range from company practices and intellectual property to information that could negatively affect an individual's reputation like an extramarital affair.
NDAs are common in the business world. Employees and business partners are often required to sign an NDA to protect company trade secrets and intellectual property. NDAs can be used in a variety of cases where the receiving party's silence is wanted so long as the subject isn't being asked to remain silent about illegal activities.
NDAs are commonly used to protect:
- Intellectual property that a company shares with employees, contractors, or partners.
- Discussion of a new invention or a plan for a business with potential partners or investors.
- Business trade secrets.
- Knowledge of legal, but potentially character-damaging, information. Ex. an extramarital affair.
- Knowledge of medical lab results by lab workers.
There are two basic types of NDAs:
- Mutual NDA. The parties on both sides of the agreement agree to not disclose a piece of information.
- Non-mutual NDA. Only one party is protected from disclosure.
NDAs need to have these elements:
- "Disclosing" and "receiving" parties to the agreement.
- Identification of what information is deemed confidential.
- Scope of the agreement and specific requirements.
- Exclusions from the agreement, e.g. information that is already common knowledge to the public or known independently by another party.
- Length of agreement — most often between two and five years.
A party may sign an invalid NDA under the impression that it is valid. However, the real test of validity is when a party tries to enforce the agreement.
An attorney could challenge an NDA's enforceability in various scenarios. Here are some common challenges from attorneys:
- When the terms of an NDA are too broad.
- When the disclosing party doesn't maintain secrecy.
- When the receiving party of the NDA has disclosed information to a third party, the NDA might not be enforceable against the third party.
- When the information in the NDA would have been disclosed eventually regardless of whether the receiving party disclosed the information.
- Unquantifiable damages. When attempting to enforce an NDA, it can be hard to determine how much a person's reputation is worth or the value of company trade secrets.
All the same general reasons that make a contract unenforceable apply to NDAs as well, including:
- A party's lack of capacity to engage in a contract.
- Duress or undue influence when agreeing to an NDA.
- Protection of information about illegal activity.
- A mistake made by either party.
Ways Out of a Non-Disclosure Agreement
Check if the NDA is stated in a clear and transparent manner. For the contract to be valid, both parties must agree to the same terms. If the terms are vague, you could potentially argue that the NDA is void.
If your NDA is verbal rather than in writing, you will probably be able to break it after a year per the Statute of Frauds.
The NDA could be void if it contains a misrepresentation, i.e. if the NDA contains affirmative untruths or if certain information isn't disclosed. For example, if the receiving party is promised work in exchange for signing the NDA but receives no work from the disclosing party, the receiving party may be able to get out of the NDA for misrepresentation.
If one party breaches the NDA, you might not need to comply with it. In this case, the breach needs to be serious for you to get out of your end of the contract. For example, two companies enter into a mutual NDA where both sides agree to protect each other's confidential information. Then the first company discloses the second company's confidential information to a third party. In this scenario, the first company has breached the NDA and the second company can get out of the agreement.
NDAs can also be terminated on mutual terms. You may ask the other party to end an NDA prematurely by writing a letter explaining why you should be released from the NDA. If the other party agrees to end the NDA, you would both sign a rescission agreement to have a written record of the NDA's termination.
If you break a non-disclosure agreement, the other party could sue you for breach of contract. Whether you're setting up an NDA or trying to get out of one, it's wise to seek the advice of a lawyer. Each NDA is unique, and a lawyer can help address legal questions.
If you need help with a legally binding non-disclosure agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.