Legally Binding Non Disclosure Agreement
A legally binding non disclosure agreement (NDA) obliges a party to keep certain information confidential or face legal consequences.4 min read
A legally binding non disclosure agreement (NDA) obliges a party to keep certain information confidential or face legal consequences. Protected information in an NDA can range from company practices and intellectual property to information that could negatively affect an individual's reputation like an extramarital affair.
NDAs are common in the business world. Employees and business partners are often required to sign an NDA to protect company trade secrets and intellectual property. NDAs can be used in a variety of cases where the receiving party's silence is wanted so long as the subject isn't being asked to remain silent about illegal activities.
NDAs are commonly used to protect:
- Intellectual property that a company shares with employees, contractors, or partners.
- Discussion of a new invention or a plan for a business with potential partners or investors.
- Business trade secrets.
- Knowledge of legal, but potentially character-damaging, information. Ex. an extramarital affair.
- Knowledge of medical lab results by lab workers.
There are two basic types of NDAs:
- Mutual NDA. The parties on both sides of the agreement agree to not disclose a piece of information.
- Non-mutual NDA. Only one party is protected from disclosure.
NDAs need to have these elements:
- "Disclosing" and "receiving" parties to the agreement.
- Identification of what information is deemed confidential.
- Scope of the agreement and specific requirements.
- Exclusions from the agreement, e.g. information that is already common knowledge to the public or known independently by another party.
- Length of agreement — most often between two and five years.
A party may sign an invalid NDA under the impression that it is valid. However, the real test of validity is when a party tries to enforce the agreement.
An attorney could challenge an NDA's enforceability in various scenarios. Here are some common challenges from attorneys:
- When the terms of an NDA are too broad.
- When the disclosing party doesn't maintain secrecy.
- When the receiving party of the NDA has disclosed information to a third party, the NDA might not be enforceable against the third party.
All the same general reasons that make a contract unenforceable apply to NDAs as well, including:
- A party's lack of capacity to engage in a contract.
- Duress or undue influence when agreeing to an NDA.
- Protection of information about illegal activity.
- A mistake made by either party.
Ways Out of a Non-Disclosure Agreement
Check if the NDA is stated in a clear and transparent manner. For the contract to be valid, both parties must agree to the same terms. If the terms are vague, you could potentially argue that the NDA is void.
If your NDA is verbal rather than in writing, you will probably be able to break it after a year per the Statute of Frauds.