Non-Disclosure Agreement (NDA) Templates

Non-disclosure agreements (NDAs), also called confidentiality agreements, are used to prevent someone from communicating sensitive information. They are legally binding contracts that can protect proprietary business information, intellectual property and trade secrets.

They are useful in many ways, including in employment agreements and lawsuit settlements. Here’s how they work.

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. For example, startup co-founders often sign a mutual founders NDA that binds each of them personally, even before the company is formed.

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.

Most NDAs have an expiration date of one to five years, so you would no longer be bound by the document after that time. However, some non-disclosure agreements cover trade secrets. Since trade secrets may last forever, or at least as long as the information remains non-public, the signer of an NDA covering trade secrets may be 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. This is called “consideration,” and it is generally required for an enforceable NDA.

In a mutual NDA, for example, each party agrees to refrain from disclosing the protected information. This can raise issues in some states when employers require existing workers to sign NDAs. While some states consider continued employment to be adequate consideration for an NDA, others require additional consideration, such as a bonus payment or a raise.

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.

What to Include in an NDA Template

Your template should include blank fields where the parties’ names can be entered to show mutual assent. The parties will fill in the promises they make, including a clear description of the information that cannot be disclosed. The contract should also list any promises other than confidentiality, such as a monetary payment or employment.

Capacity is based on the parties’ ages and mental competence. A contract template might state that both parties were competent, but this statement is only effective if the parties, in fact, had the legal capacity to enter into a contract.

Legality varies from state to state. Some states allow NDAs to cover any information. However, some states restrict the subject matter of NDAs. For example, Vermont employment law prohibits employers from requiring workers to sign contracts that block them from disclosing sexual harassment.

How to Create a Non-Disclosure Agreement

Make sure your NDA template covers the following:

• Duration and scope
• What information is protected
• Identification of parties
• Remedies for a breach

It’s important to note that laws surrounding NDAs can vary drastically between states.

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.

Non-disclosure clauses are common in lawsuit settlements. For instance, insurance companies routinely include NDAs in the average personal injury settlement to prevent claimants from informing other accident victims of the amount that the insurer is willing to pay.

However, settlement NDAs can also be limited by state law. California Civil Code § 1670.11 voids any NDA that blocks the signer from testifying under subpoena or court order about criminal conduct or sexual harassment when compelled by subpoena or court/agency order. Other states have similar restrictions – New York, for example, bars settlement NDAs from restricting disclosure of discrimination, harassment or retaliation claims.

Limitations of NDAs and Consequences of Breaking One

The federal Speak Out Act provides basic nationwide protection against certain types of NDAs. Specifically, this federal law prohibits courts from enforcing any nondisclosure clause agreed to before the dispute arises, in which one party has allegedly violated state or federal law.

This law allows states to pass greater restrictions on the enforcement of NDAs directed to concealing sexual harassment or assault, but it prohibits them from weakening the Speak Out Act’s protections.

Additionally, 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.

Federal law also protects whistleblowers from NDA lawsuits. For example, the Defend Trade Secrets Act gives immunity from lawsuits to anyone who discloses a trade secret in confidence to a lawyer or a government official to report a suspected legal violation. Employers must also include a notice of this immunity in their NDAs or lose the right to seek exemplary damages and fees.

Yet another federal law that can limit NDAs is the National Labor Relations Act. Under this federal law, employers cannot enforce overly broad NDAs that prohibit workers from discussing with co-workers the terms or conditions of employment, including wages, hours or working conditions.

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

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