What is a Nondisclosure Agreement?
When you are hired by a business, you may find yourself signing a Nondisclosure Agreement (NDA) – but what exactly does that mean?
Understanding an employee contract before adding your signature is important when it comes to avoiding conflict with your employer down the road.
While most are straightforward and detail the terms of your employment, a nondisclosure agreement is an additional agreement that needs to be carefully understood.
You could find yourself facing legal trouble if you break this agreement.
To help you comprehend what an NDA is before you sign one, Heritage Law has put together this guide to nondisclosure agreements:
What is a Nondisclosure Agreement?
A nondisclosure agreement is a legally binding contract that establishes a confidential relationship stating that sensitive information shared between the signing parties cannot be made available to others.
In most cases, businesses will use a nondisclosure agreement in order to protect working projects, ideas, and new products from becoming available to competitors.
Likewise, businesses or services that deal with sensitive client information, such as medical offices or legal practices, strive to keep their client’s information private in order to avoid legal issues.
This means that if you are given access to such information, you are obligated not to share that information with anyone outside of the business or service.
When signing a nondisclosure agreement, you may see terms such as “confidentiality agreement”, “confidentiality statement” or “confidentiality clause” – these are alternative references to a nondisclosure agreement.
Nondisclosure agreements can bind you to secrecy for an indefinite period of time. The penalties for breaking an NDA, which should be clearly outlined in the agreement, can include criminal charges.
The Different Types of Nondisclosure Agreements
Employers and businesses are at liberty to tailor a nondisclosure agreement to suit their needs. For this reason, there are different types of nondisclosure agreements you should be aware of:
One-Way and Two-Way NDAs
These forms of NDA is typically used between businesses but can also be applied to an agreement between an employee and an employer.
A one-way NDA can be used when one business is sharing information and the other business, or employee agrees to keep it confidential.
A two-way NDA applies when there are two businesses involved and ensures that neither shares sensitive information.
Precedent Confidentiality Agreement
When a business acquires another business or merges with them, they will likely use a precedent confidentiality agreement when it comes to examining the other business’ books and assets.
This protects the other business from having this information shared if the prospective buyer pulls out of the deal.
Nondisclosure agreements, as mentioned above, are often used as part of an employment contract to ensure that confidential information is not shared.
While the idea of confidentiality can be assumed when working for a business, it’s important for businesses to outline exactly the type of information that cannot be shared.
How to Read and Understand a Nondisclosure Agreement
Nondisclosure agreements can be customized to suit the business’ needs, but there are certain aspects of the agreement that must be included:
- The names of the parties signing the agreement.
- A clear definition of what constitutes confidential information.
- Any applicable exclusions from confidentiality or situations where information can be appropriately revealed.
- The time period of confidentiality.
- Any consequences of breaking the nondisclosure agreement.
If you are asked to sign a nondisclosure agreement, it is recommended that you carefully read the agreement.
Negotiating a Nondisclosure Agreement
Take into consideration any obligations in the agreement that you will have trouble fulfilling. Communicate these to the individual or party asking you to sign and see if you can renegotiate the terms.
For instance, as an employee, an NDA may stipulate that you cannot be employed by any businesses considered to be “competitors” (also known as a “non-compete” clause).
This means, for example, that you couldn’t work part-time as a legal secretary at one law firm and work additional hours at another firm.
While this obligation to confidentiality is hard to negotiate, you can certainly negotiate the terms of an NDA if you are merging your business or bringing an innovative idea to the table.
In this case, you can negotiate for agreement aspects such as clarification of confidential information as well as the protection of your ideas and information.
When considering the negotiation of a nondisclosure agreement, we recommend that you consult with a lawyer to ensure the terms are clearly stated and fair.
Beware Your Own Confidential Information
While the nature of an NDA may indicate that your information will be protected as well, it’s important to carefully read the terms to ensure this is so.
Some NDAs may include a clause that states that the agreement does not create a confidential relationship or does not obligate the business to secrecy or confidentiality when it comes to your information.
To ensure that your information is protected as well, have one of our lawyers at Heritage Law review the nondisclosure before you sign it.
Approaching Nondisclosure Agreements Carefully
While typical employment contracts may find you terminated if you break the agreement, not following a nondisclosure agreement could put you into legal trouble.
This is why it is imperative that you understand the terms of a nondisclosure agreement completely before signing it.
For example, you may work in a medical office where it would be explicitly understood that you cannot share patient information with a third party.
However, a nondisclosure agreement may state that you are not allowed to accept gifts from, or give gifts to, a patient or client.
Likewise, an NDA may dictate when you can legally disclose information and when you cannot if approached by a government agency, administrative entity, or the courts.