Non-Disclosure Agreement (NDA)

What is a Non-Disclosure Agreement?

A Non-Disclosure Agreement (NDA), also called a confidentiality agreement, is a legally binding contract between two or more parties that establishes a confidential relationship. The party or parties who sign the agreement commit to not disclosing the information outlined in the contract to outside parties.

NDAs are among the most common legal agreements in the business world.

Types of NDAs

Unilateral (One-Way) NDA

One party discloses information to another. Only the receiving party is bound by the confidentiality obligation. Common in employer-employee or company-vendor relationships.

Mutual (Two-Way) NDA

Both parties share confidential information with each other. Both parties are bound to keep the other's information confidential. Common in business partnerships, joint ventures, and M&A discussions.

Multilateral NDA

Three or more parties are involved, at least one of whom discloses information to the others.

What Should an NDA Include?

A well-drafted NDA should cover:

1. Definition of Confidential Information: What information is protected (trade secrets, business plans, customer lists, financial data, etc.)
2. Exclusions: What is NOT considered confidential (publicly available info, independently developed info)
3. Obligations of the Receiving Party: How they must protect the information
4. Duration: How long the confidentiality obligation lasts (typically 2–5 years)
5. Permitted Disclosures: When disclosure is allowed (court order, legal requirement)
6. Return or Destruction of Information: What happens to documents when the relationship ends
7. Remedies: What happens if the NDA is breached (injunctive relief, damages)
8. Governing Law: Which state's laws govern the agreement

When Do You Need an NDA?

• Hiring employees who will have access to trade secrets or proprietary business information
• Meeting with potential investors or business partners
• Working with contractors, consultants, or vendors who will see confidential systems
• Early-stage business discussions before a formal partnership agreement
• Product development with third-party developers or manufacturers

Key Considerations

Scope: Make the definition of "confidential information" clear but not so broad that it's unenforceable.

Duration: Courts may not enforce perpetual NDAs. A reasonable time limit (2–5 years) is more defensible.

Trade Secrets: Some trade secret protections exist under the Defend Trade Secrets Act (DTSA) even without an NDA, but a signed agreement strengthens your position significantly.

Jurisdiction: Specify which state's law governs the agreement, as NDA enforceability varies by state.

Frequently Asked Questions

Are NDAs enforceable? Yes, when properly drafted. Courts generally enforce NDAs that have a reasonable scope, duration, and geographic limitation. Overly broad agreements may be modified or struck down.

Can an NDA prevent someone from whistleblowing? No, NDAs cannot prohibit reporting illegal activity to government agencies. The Defend Trade Secrets Act includes explicit whistleblower protections.

Do NDAs expire? Yes, most NDAs have a defined term. Some trade secret protections may last as long as the information remains a trade secret, but the general NDA obligation expires per the agreed term.