Mum’s the Word:  Non-Disclosure Agreements

Don’t Say Nuthin’:  Maintaining Confidentiality in the Workplace

Every business has secrets to keep that they don’t want told, and that they’ll go to great lengths to protect.  Whether it’s something as simple as their internal directory of telephone extension numbers, or as complicated as their proprietary algorithm for quoting online prices to their customers, all companies regularly create, use, and receive confidential information as part of their ongoing operations and to maintain their competitive edge.  One device commonly utilized to minimize the risk of secrets being told is a non-disclosure agreement (NDA).  The overall purposes of an NDA are to protect confidential information, intellectual property rights, customer communications, and temper expectations.  NDAs send a message, and they create a legal mechanism to protect ideas and know-how from being ripped off

A properly structured NDA is a legally binding agreement imposing certain rights and obligations on all the attendant parties.  Done right, an NDA can be enforceable in the courts and subject breaching parties to injunctive proscriptions, monetary relief, and other forms of forbearance or recompense.  While not typically a crime in itself, depending upon the extent of breached confidentiality the penalties can indeed be severe, such as when a party violates intellectual property rights such as copyright or trademark infringement.  In other words, not only is disclosing confidential information a violation in itself, the nature of what has been disclosed might also bear separate liability if infringed.

NDAs typically arise in a couple of contexts:  you’ll almost always find them in the context of an individual’s employment or service retention with a company, but also whenever a company wants to borrow money from a creditor, or discuss a potential business partnership with someone, or offer itself for sale.  In all of these situations, NDAs serve to temper expectations, protect secret information, and provide a means of legal recourse if the contracted expectations are dishonored.   They might also come up in connection with the launch of a new product or service into the marketplace, while on-boarding new clients, vendors, or suppliers, in the course of commissioned research, or when mitigating fallout following internal disruption.

NDAs can be unilateral, in which case one party agrees not to disclose confidential information provided by the other party, or they can be mutual, in which both parties agree not to disclose information provided by the other.  Employment agreements are good example of a unilateral NDA; an employee agrees up front that whatever secrets or confidential information they learn while “on the job” will remain secret and confidential and will not be shared with other individuals outside the scope of his or her employment.  Mutual NDAs binds both parties equally and ensures neither of them will divulge confidential information to any third party.

To hold up properly and be otherwise enforceable, NDAs need at a minimum to sufficiently identify all the parties to the agreement specifying as much detail as possible.  The particular behavior expected from each contracting party should be specified and a time frame of expectations should be denoted, since NDAs for indefinite periods of time are generally considered to be contrary to public policy.  A good NDA will likewise specify that certain information – such as that which has already been publicly divulged – are excluded from the scope of an NDA and this serves to clarify its enforceability.  Overly broad or extensive NDAs may not be held to be enforceable.

NDAs are also subject to general rules of reasonability and not all information can be construed as confidential just because the parties want it that way.  Confidentiality restrictions extending to crimes or illegal activity are generally unenforceable.  Protected information needs to be identified with some specificity and in most cases will only be protected for reasonable periods of time in the specific jurisdiction referenced in the NDA itself.  Resist the urge to reach beyond what is really needed, be concise whenever possible, and use judicial terms of art sparingly and properly,

Although there are no agreed-upon standards for an NDA, courts will generally hold such agreements to high standards of specificity and detail and it is always advisable to consult a qualified expert whenever in doubt.    NDAs are also bound by requirements for consideration in order to be enforceable, although in an employment context the simple act of providing at-will employment to a prospective employee will generally be sufficient to constitute consideration.

If breached, an NDA can be the subject of a legal proceeding seeking damages, injunctive relief, or some form of alternative dispute resolution.  Financial penalties can accrue, as can reputational damage.  Employees in breach of NDAs face the loss of livelihood and, depending on the information disclosed, criminal liability.  NDAs should therefore be taken seriously and parties should take all reasonable steps to ensure compliance with their terms and conditions. 

© 2024 Frank Rittman

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Mum’s the Word:  Non-Disclosure Agreements

The overall purposes of an NDA are to protect confidential information, intellectual property rights, customer communications, and temper expectations. NDAs send a message, and they create a legal mechanism to protect ideas and know-how from being ripped off