Key Takeaways:

  • Breaking a non-disclosure agreement (NDA) can lead to legal action, including lawsuits for breach of contract, monetary fines, and, in extreme cases, criminal penalties.
  • NDAs are legally binding contracts that protect sensitive information such as trade secrets, client data, and proprietary processes.
  • Remedies for NDA breaches may include financial damages, injunctions, or legal costs, depending on the specifics outlined in the agreement.
  • NDAs vary by jurisdiction and can be challenged if they are overly broad, ambiguous, or used to conceal illegal activities.
  • Properly drafting an NDA with clear terms, detailed confidential information, and specified consequences is crucial for enforceability.

What happens if you break a non-disclosure agreement? The consequences of violating a non-disclosure agreement (NDA) can be severe. At the very least, you may face a costly lawsuit, and you might also face criminal penalties, depending on the information revealed.

What is a Non-Disclosure Agreement?

When you commit to a non-disclosure agreement, you are agreeing to much more than simply keeping a secret. NDAs are binding contracts that legally require you to protect any sensitive information included in the contract.

Businesses commonly use NDAs to secure trade secrets and other private information that is vital to the business. Some information that can be protected by an NDA includes:

  • Product designs.
  • Information about clients.
  • Marketing strategies.
  • A unique process of manufacturing an item.

Generally, an NDA will deter people from revealing your organization's most sensitive information. Should a breach of the agreement occur, however, you will have legal remedies to help make up for the harm caused by the breach.

Types of Non-Disclosure Agreements

NDAs come in different forms depending on the context of their use. Here are the most common types:

  1. Unilateral NDA: Used when one party agrees to protect the confidential information of the other party. This is typical in employer-employee relationships.
  2. Mutual NDA: Common in partnerships or negotiations, where both parties agree to protect each other's sensitive information.
  3. Multilateral NDA: Involving three or more parties, this type of NDA requires all participants to adhere to confidentiality agreements about shared information.

The type of NDA determines the scope of protection and remedies available in the case of a breach.

Violating an NDA

Breaching a non-disclosure agreement can have very serious consequences, and if you find that someone is violating one of your agreements or is misappropriating information in some way, there are a few actions that you can take. For instance, you can file a lawsuit against the person who is revealing your private information.

When misappropriation occurs, it means that someone has either revealed or acquired private information without authorization. Unfortunately, misappropriation is common, and it can occur in several forms:

  • A competitor promises to hire your employee for a significant amount of money in exchange for your organization's trade secrets.
  • An employee gives private information to an outside party who later reveals this information publicly.
  • A hacker obtains trade secrets by breaking into a company's computer system.

Regrettably, misappropriation often goes unpunished. In some cases, employers decide not to enforce NDAs because doing so can be very expensive. However, your non-disclosure agreement should include remedies for serious breaches that are usually worth pursuing.

Companies that aren't familiar with drafting NDAs may fail to clearly describe what type of information the agreement covers. When writing a non-disclosure agreement, you need to fully describe what information the agreement covers and the consequences for revealing this information. A clearly written contract will make it easier for you to be awarded damages in a breach of contract lawsuit. In addition to a breach of contract suit, you may be able to sue for:

  • Breach of fiduciary responsibility.
  • Copyright infringement.
  • Misappropriation of trade secrets.
  • Various violations of intellectual property law.

The Uniform Trade Secrets Act is the basis for laws in different states related to protecting trade secrets. These laws can provide protections for a wide variety of intellectual property, including:

  • Devices.
  • Drawings.
  • Formulas.
  • Computer codes and programs.
  • Business techniques.
  • Customer lists in certain states.

An example of a trade secret misappropriation may better help you understand how to respond in the event of an NDA breach. Imagine that you are the head of the IT department in your company. One day, you come into work and discover that a hacker infiltrated one of your servers and acquired sensitive information such as customer lists, private emails, and code for software your company will soon release. Recently, you fired an IT contractor, and they reacted poorly to the termination, making them the most likely suspect.

If this contractor signed a non-disclosure agreement, there are a few steps you can take if you find they were responsible for the breach:

  1. Carefully read the NDA and determine if the contract includes remedies for a breach.
  2. Perform a full investigation of how the breach occurred and what information is lost. Generally, this will be the most time-consuming step after an NDA violation. You will likely have some idea of what information has been disclosed, but you will need to prove how it was stolen and who was responsible. During your investigation, try to determine how the breach occurred, what information was disclosed, and the economic harm of the disclosure.
  3. Decide what legal action you will take to make up for the violation. Typically, after an NDA breach, you will be able to demand monetary damages from the guilty party.

Consequences of Breaking an NDA

Breaking an NDA can result in various consequences, which depend on the specifics of the agreement and the nature of the breach. Common consequences include:

  • Financial Damages: Breaches often lead to monetary penalties. The guilty party may have to pay compensatory damages, which can include the profits lost due to the breach.
  • Injunctions: Courts may issue an injunction to prevent further disclosure or use of the confidential information.
  • Legal Costs: If the case goes to court, the breaching party may have to pay the plaintiff's legal fees in addition to damages.
  • Loss of Employment: Employees who breach an NDA may face immediate termination.
  • Reputational Damage: Violating confidentiality can harm the individual's or organization's professional reputation.
  • Criminal Penalties: In rare cases involving theft of trade secrets or espionage, breaching an NDA can lead to criminal charges, fines, or imprisonment.

Each agreement should specify the remedies available, making it critical to review and understand the terms before signing.

How to Respond to an NDA Breach

If someone violates an NDA, the following steps can help address the breach:

  1. Review the Agreement: Analyze the NDA to determine what information is protected and the remedies outlined for a breach.
  2. Document the Breach: Gather evidence to prove how the information was misused, who was responsible, and the extent of the harm caused.
  3. Notify the Offender: Sometimes, a formal notification is enough to resolve the issue without legal action.
  4. Seek Legal Counsel: Consult an attorney to assess your options and potential remedies, such as seeking injunctive relief or filing a lawsuit.
  5. Pursue Legal Action: If necessary, pursue a lawsuit for damages or injunctions as outlined in the NDA.

Common Misconceptions About NDAs

Many individuals and businesses misunderstand the purpose and scope of NDAs. Here are some common misconceptions:

  • "NDAs are only for employees." NDAs apply to contractors, vendors, partners, and anyone exposed to sensitive information.
  • "NDAs are always enforceable." Courts may void an NDA if it is overly broad, ambiguous, or attempts to cover illegal activities.
  • "Breaching an NDA isn’t serious." Even minor breaches can lead to significant financial and legal consequences.
  • "NDAs last forever." Most NDAs have a specified duration, after which the obligations expire.

Clarifying these misconceptions can help individuals and businesses better understand their rights and responsibilities under an NDA.

FAQ Section:

  1. What happens if you break an NDA? Breaking an NDA can result in lawsuits, monetary damages, or injunctions. In severe cases, criminal penalties may apply.
  2. Can an NDA be voided? Yes, NDAs can be voided if they are overly broad, ambiguous, or used to conceal illegal activity.
  3. Do NDAs apply after termination of employment? Most NDAs include clauses that extend their confidentiality obligations beyond the term of employment.
  4. How can I enforce an NDA? To enforce an NDA, you can notify the violator, gather evidence, and file a lawsuit if necessary.
  5. Are there exceptions to NDA obligations? Yes, NDAs cannot prevent disclosures related to illegal activities or protect information already in the public domain.

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