Take Our HR Skills Assessment to Get a Custom Learning Plan
On the other hand, it may feel awkward to greet new employees or partner with a legal document constraining their behavior and outlining the legal consequences if they violate its tenets. This article helps explain the value of an NDA and how you can start using them to protect your business.
What is a Non-Disclosure Agreement (NDA)?
A Non-Disclosure Agreement is a legal agreement between two or more people that protects your company’s valuable information. When you engage an employee, contractor, or company to collaborate with or support your business, you inevitably share nonpublic information. An NDA creates boundaries that prevent the signee from misusing or sharing information without authorization.
NDAs protect trade secrets (i.e., engineering specs, financial information, secret recipes, or unique processes), campaigns, research, client lists, membership account details, and anything else economically valuable to your business (including your reputation).
Sometimes NDAs accompany legal settlements to prevent further damage to a company or individual. Just as often, an NDA is a preventive measure that protects confidential information with the threat of legal action before any wrongdoing can occur.
Non-Disclosure Agreement vs. Confidentiality Agreement
You might have heard the term Confidentiality Agreement rather than Non-Disclosure Agreement. Generally, people use the two terms interchangeably. There is no legal difference between the two titles.
The use of either term comes down to preference, but there are patterns in how businesses typically use one or the other.
NDAs typically occur when:
- The protected information is personal or private.
- The agreement is unilateral or one-sided; for instance, when a company wants an employee to keep information confidential.
- You are working with independent contractors, vendors, or suppliers.
Confidentiality Agreements typically occur when:
- The burden or scope of secrecy is greater.
- The agreement is bilateral.
- You want to emphasize proactive protection of proprietary information rather than simple non-disclosure.
- You are working with employees.
Situations Where You Might Use an NDA
Whether or not to get a signed NDA is more important than what you call it. Inevitably, there will be times when you or someone within the business needs to share private information with another individual or company.
An NDA is a good idea any time you share something valuable about your business that you don’t want the other person to disclose or outright steal. There are plenty of situations where an NDA makes good business sense.
- Employees who have access to confidential information. Some of your employees may have roles within the business that require access to information and data essential to the industry, such as contracts, processes, and client lists. An NDA serves to prevent employees from selling or walking off with your trade secrets to start their own, competing company.
- Vendors or third-party companies need access to sensitive information. Any time you are working with a new vendor who needs access to the information you carefully protect from competitors and hackers, you should get a signed NDA. For example, if you work with a marketing company that needs access to your member database, or an IT company helping you consolidate your cloud-based data, don’t start work without an NDA.
- Hiring freelancers to work on a campaign or project. You don’t need an NDA with every freelancer you work with, but there are several situations where it would be a good idea to have one. If you hire a freelancer to develop a platform or website and give them access to source codes and business strategy, get a signed NDA from them. Freelancers that work on anything that has Intellectual Property (IP) rights to it should also sign an NDA.
- Licensing negotiations for your products or services. You should always get a signed NDA from a licensee considering your products or services. If sharing behind-the-scenes information for something developed by your company, such as a software application, get a signed NDA and an agreement not to reverse-engineer your product.
- Any time you share valuable, confidential information you don’t want to be exposed or misused. When you consider how hard your company’s brilliant minds and talent work to create, innovate, and build clientele, you can’t help but want to protect their efforts. When in doubt, an NDA is a good idea, and if you are already taking other security measures, ask for an NDA in addition.
3 Types of Non-Disclosure Agreements
Not all NDAs are alike. There are essentially three types of agreements, and knowing the different applications will help you decide which is appropriate in your situation.
Unilateral (one-sided) NDAs work when you want to secure confidentiality from the other party, usually your employees. Most NDAs fall under this description. The purpose of these agreements is to protect your trade secrets and any research created by your employees.
Bilateral (mutual) NDAs occur between two businesses working together and sharing proprietary information. For example, if your business is collaborating with another brand, you should consider a bilateral NDA.
A multilateral NDA involves three or more parties where at least one party shares proprietary information. These agreements can be helpful when you need to work with multiple companies or contractors on a project, but want to implement just one agreement.
How to Write a Non-Disclosure Agreement
An NDA is nothing but a piece of paper if it doesn’t contain the proper elements to protect you and your business. It is not about the length or complicated vocabulary. The recipe for a good NDA includes five important components.
You need to clarify who the agreement applies to and who is the disclosing party. In a unilateral agreement, just one company or person is the disclosing party. If you are drafting an NDA for employees, you or your business are the disclosing parties.
Next, you need to define exactly what information you deem as confidential. Here you want to be clear but broad, so there is no confusion or room for loopholes later. You may want to say that information shared both in writing and orally is confidential. If only certain information is confidential, you might specify that the NDA protects documents marked as “confidential.”
When explaining the scope or extent of the NDA, you need to consider the information from two perspectives. First, you want to prevent someone from disclosing private, valuable information. Second, you want to prevent them from using your hard-earned trade secrets for their benefit. The NDA should prohibit both disclosure and misuse of the information. Your NDA might also explain obligations on the other party to take measures to protect your information, like additional security measures or limiting access to the information within their own company.
The NDA should acknowledge information that you might not reasonably expect the other party to keep confidential. For example, the other party might be privy to public knowledge or information from a third party not bound by an NDA.
Your NDA should also allow the other party to disclose confidential information during legal proceedings without breaking the NDA.
You need to define when the agreement ends. If you want the NDA to last forever, it can, but you must stipulate this in your document. For example, if you need to share sensitive member account information, you would want to protect that always.
Most agreements have a limit of two to five years, by which time much of the protected information is also protected by intellectual property rights, copyright, or patent. For example, if you work with an outside firm to market a new app, you can stipulate the terms to protect the information until sometime after the launch and marketing campaign.
Example Non-Disclosure Agreement Template
Now that you know the essential elements of an effective NDA, it’s time to start crafting a document that fits your business needs. Here is a sample template to get you started:
Note that no template is perfect, and you should always consult a lawyer before asking employees to sign any legally binding document.
How to Get a Signed NDA
Even when an NDA makes sense to you as an employer, it might come across as at least awkward if not intimidating to your employees. It’s important to present an NDA as a precautionary measure and provide explanation whenever possible.
An effective NDA does not overburden the employee with unnecessary obligations. Your NDA should reflect realistic expectations and the legal loopholes that make people feel more comfortable agreeing to.
What to Do if an Employee Violates Their NDA
If an employee, or non-employee for that matter, violates their NDA, there are several steps you need to take to determine the best course of action.
First, review the terms of the NDA itself. Some agreements clarify recourse for violations of the contract.
Second, investigate the breach of contract to determine what information was leaked or the extent of misuse. You will also need to build a case for legal action with evidence of the breach. Determine how the information got out and who is involved.
Third, you need to consult with a lawyer. You might issue a cease and desist letter, and if that fails to address the violation, seek damages or restitution for the theft of information. In some cases, other broken contracts also come into play, such as patent infringement or laws that protect personal protected information, such as HIPAA.
Discovering a breach of confidentiality can leave you feeling shaken, but following the proper steps can help you deal with the legal implications more easily.
Questions You’ve Asked Us About Non-Disclosure Agreements
Want to contribute to our HR Encyclopedia?
Posts You Might Like
Hiring a new employee is about finding the best person for the right job—but after you’ve picked the perfect hire, a mountain of paperwork stands between you and getting the new employee to work. Productivity comes after you’ve got all the proper new hire documents filled out and in place as part of the onboarding process.
Few things make a bigger difference in new hire onboarding than the creation of an onboarding packet. With an onboarding packet, you’re able to organize all your tasks, paperwork, and assignments and monitor it’s progress. We not only share the secrets behind what a good onboarding packet looks like, but we also provide a downloadable template for you to use and re-use as you go.
When it comes to new employee paperwork, it’s easy to feel overwhelmed. How can you know which documents are required to be signed and which are optional? How many forms should your new employees complete before they’re ready to work? What paperwork is the most important? All of these questions are answered as you dive into our new employee paperwork checklist.