What Happens If You Break a Non-Disclosure Agreement?
What happens if you break a non-disclosure agreement? The consequences of violating a non-disclosure agreement (NDA) can be severe.3 min read
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.
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:
- 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:
- Carefully read the NDA and determine if the contract includes remedies for a breach.
- 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.
- 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.
If you need help understanding what happens if you break a non-disclosure agreement, you can post your legal needs 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.