How non-disclosure agreements work

Many assume that there is some dark intention to asking employees or business partners to sign a non-disclosure agreement (NDA). Rather than hide inappropriate behavior or illegal activity, these agreements are often used by businesses to protect proprietary information when the company shares this information with potential hires, outside vendors, consultants, contractors and current employees. These agreements can strengthen the relationship between business partners and deter the theft of intellectual property. To be valid, all parties must willingly sign the NDA.

What NDAs may cover

Contracts can address a variety of business concerns, and perhaps the conditions also involve a finite or infinite period:

• Trade secrets, proprietary information or confidential information
• Special sauces, unique formulas or secret recipes
• Manufacturing processes
• Protected information like a list of clients or sales contracts
• New projects in development
• Non-public accounting figures
• A secret that could impact the profitability of a business

What doesn’t an NDA cover?

Common examples of what an NDA does not cover:

• Information that the company takes no pains to keep secret
• Public records filed with the SEC
• Knowledge gained by an ex-employee before they signed the NDA
• Knowledge outside the agreement gained by employees and non-employees
• Information revealed in a court subpoena

Legal action may be necessary

The penalties for breaching the contract are also spelled out in the NDA and can lead to civil or even criminal action. The courts will have leeway in determining what the NDA covers and does not cover – generally, the strongest agreements are not considered overly constrictive or do not prevent someone from seeking employment or other business opportunities.

Those with questions about creating a binding NDA or other agreement can often get the answers they need by discussing the matter with an attorney who has experience drafting agreements and contracts. These legal professionals can also help determine a breach or whether the NDA is still valid.