In this guide
What is a Non-Disclosure Agreement?
A Non-Disclosure Agreement (NDA), also known as a confidentiality agreement, is a legally binding contract that establishes a confidential relationship. The party signing agrees not to disclose information covered by the agreement to third parties. In the employment context, NDAs are used to protect trade secrets, client lists, financial data, and other proprietary information.
There are two main types: unilateral (one-way) and mutual (two-way). In employment, it's usually unilateral, with the employee or contractor agreeing to protect the company's information. In partnerships or joint ventures, mutual NDAs are common, where both parties share confidential information and agree to protect each other's secrets.
NDAs can be standalone contracts or included as a clause within a broader employment agreement or offer letter. Even if not explicitly titled 'NDA,' a confidentiality clause in your employment contract has the same effect.
Key Clauses in an NDA
Definition of Confidential Information: This is the most critical part. It defines what information is protected. The definition can be broad (e.g., 'all non-public information') or specific (e.g., 'customer lists, source code, marketing strategies'). A clear definition helps you know exactly what you can and cannot disclose.
Obligations of the Receiving Party: This clause outlines your duties, such as using the information only for the intended purpose (e.g., performing your job) and safeguarding it with reasonable care. It also typically requires you to return or destroy materials upon termination of employment.
Exclusions: Most NDAs carve out information that is already public, independently developed, or received from a third party without obligation. These exclusions prevent the NDA from being overly restrictive and protect you from unintentional breaches. You can employment contract with a state-specific template here.
Term and Survival: The agreement specifies how long it remains in effect. For trade secrets, it often lasts as long as the information remains a trade secret, even after your employment ends. For other confidential information, a set period (e.g., 2-5 years) is common.
Consequences of Breach: This section details remedies, such as injunctions (court orders to stop disclosure) and monetary damages. It may also include attorney's fees provisions, meaning the losing party pays the other's legal costs.
- Always read the definition of confidential information carefully.
- Look for exclusions that protect your ability to use general skills and knowledge.
- Check the term to understand how long your obligations last.
- Note any reporting requirements if you receive a subpoena for information.
NDAs for Employees vs. Independent Contractors
Employees often sign NDAs as part of the onboarding process. The NDA may be bundled with other agreements like non-compete and non-solicitation clauses. For employees, the company has a legitimate interest in protecting its proprietary information, and an NDA is standard.
Independent contractors and freelancers may also be required to sign an NDA before starting a project. This protects the client's business information. For freelancers, an NDA can be tricky because you may work with multiple clients in the same industry. You need to ensure the NDA doesn't prevent you from using your general skills or working with competitors.
Before signing an NDA as a freelancer, consider whether it restricts your ability to solicit clients or use your prior experience. If the NDA is too broad, negotiate for a narrower definition of confidential information or add a clause that allows you to work with other clients as long as you don't disclose specific confidential information.
Enforceability and Limitations of NDAs
NDAs are generally enforceable if they are reasonable in scope and protect legitimate business interests. Courts will not enforce overly broad NDAs that prevent an employee from working in their field or that restrain trade. The agreement must be supported by consideration (something of value, like a job offer or a bonus).
There are important legal limitations. In many jurisdictions, NDAs cannot be used to conceal illegal activities, such as harassment, discrimination, or fraud. Some laws (e.g., the Defend Trade Secrets Act in the U.S.) provide immunity for whistleblowers who disclose trade secrets to government officials or attorneys in confidence for the purpose of reporting a violation of law.
If an NDA is too vague or overreaching, a court may find it unenforceable. For example, a clause that prohibits disclosure of 'any information about the company' without specifying what's confidential may be struck down for vagueness. Always seek legal advice if you have concerns about enforceability.
Practical Tips Before You Sign an NDA
Read the entire document carefully, not just the summary. Pay attention to the definitions and obligations. If there's a non-disparagement clause, understand that it prevents you from making negative statements about the company, which could affect your future references.
Ask questions about anything unclear. What constitutes confidential information? How long does the obligation last? What happens if you accidentally disclose something? Clarify these points in writing if possible.
Negotiate for reasonable terms. You can propose changes such as narrowing the definition, shortening the term, or adding a carve-out for your own materials or knowledge. Many employers are open to reasonable modifications, especially for key hires or freelancers.
Keep a copy of the signed NDA for your records. This will help you remember your obligations and serve as evidence if there's a dispute.
- Never sign an NDA under pressure or without reading it.
- If you're an employee, check if the NDA is part of a larger agreement that includes non-compete clauses.
- For freelancers, ensure the NDA doesn't conflict with other client agreements.
- If you have concerns, consult an employment attorney.
What to Do If You're Accused of Breaching an NDA
If you receive a cease-and-desist letter or a lawsuit alleging breach, take it seriously. First, review the NDA and the allegations. Determine if the information you disclosed actually falls under the definition of confidential information. If it's publicly available or excluded, you may have a defense.
Do not ignore legal notices. Contact an attorney immediately. If you believe you've breached the NDA, you may be able to mitigate damages by stopping the disclosure and cooperating. In some cases, the company may be seeking an injunction to prevent further disclosure, which a court can issue quickly.
If you're a whistleblower, you may have protections under the law. In the U.S., the Occupational Safety and Health Administration (OSHA) handles whistleblower complaints. You should document your report and any retaliation you face.