What Is An NDA? How To Safeguard Information (2026)

What Is an NDA?

An NDA is an enforceable contract that includes a clause prohibiting the disclosure of certain confidential information. What is confidential information? It includes proprietary, sensitive or non-public data, though the protected information must be clearly defined in the contract. Likewise, the contract describes what the party can and cannot do with the information. NDAs can involve two or more parties.

Types of NDAs

NDAs are usually unilateral or mutual. The situation dictates whether to use a mutual vs. unilateral NDA.

A mutual NDA obligates multiple parties to keep information confidential. It is often called “mutual” because the parties disclose information to each other and they “mutually” agree to keep each other’s information secret.

A unilateral NDA only obligates one party to preserve the information’s secrecy. A unilateral NDA might restrict one party from disclosing information in exchange for a payment from the other party.

Less commonly, you may encounter a multilateral NDA, which involves three or more parties. One or more parties may divulge sensitive information while all the receiving parties promise to safeguard it. These types of NDAs are often more efficient than establishing separate documents for each party.

It’s also possible to encounter a terminating NDA. This document has an expiration date, so you would no longer be bound by the document after that time. The majority of non-disclosure agreements, however, are non-terminating. This means that the signer is bound permanently from sharing the confidential information.

Key Components of a Non-Disclosure Agreement

To be considered valid, an NDA must meet certain requirements. First, it must contain terms that all parties voluntarily agreed on. This is called “mutual assent.”

All the parties must also promise to do something or refrain from doing something they would otherwise be free to do. In a mutual NDA, for example, each party agrees to refrain from disclosing the protected information.

The document must clearly state the parties involved in the agreement. If there are time limits, these must also be included, along with the obligations of the recipient of the information. Most NDAs will note what the consequences of a breach are, as well as who will pay the legal fees if a dispute arises and how disputes will be resolved.

Finally, the NDA contract must be reasonably clear. The terms should describe the information protected from disclosure and how the information may or may not be handled by the parties.

When Do You Need an NDA?

What is an NDA used for? An NDA can work for any legal purpose that calls for secrecy. They may be used for many types of data, including trade secrets, confidential financial information and lawsuit settlement terms. For example, a freelancer NDA may be used when a company shares confidential client or project information with an independent contractor.

Limitations of NDAs and Consequences of Breaking One

Many states restrict the use of NDAs. When a state statute prohibits the subject matter of an NDA, the state’s courts will refuse to enforce it. For instance, under Utah law, NDAs cannot be used to block employees from disclosing sexual assault or harassment. California takes a similar approach – NDAs are enforceable there, but they cannot be used to silence claims of harassment, discrimination or sexual assault.

If the subject matter is permitted, the NDA is breached when a party discloses the protected information. The non-breaching party may be able to file a lawsuit against the breaching party. A court could then award monetary damages and issue an injunction blocking further dissemination of the information.

Learn More About NDAs and Other Contracts

At ConsumerShield, we help people understand their rights and navigate their legal issues. Explore our available tools and resources to get started today.