It would be nice if we could all rely on each other's honorable word to keep a secret. But in today's high-tech and highly sociable environments, employers need a little more than that.
Creating a nondisclosure agreement, or NDA, for incoming employees is a common step for many businesses. Under a nondisclosure agreement, the potential employee agrees not to disclose any proprietary or confidential information about the company or its practices, among other things.
What a nondisclosure agreement does
Lindsay Olson, a writer with U.S. News, says NDAs 'boil down to trust.' The relationship between employee and employer is new, and the other party has no way of knowing if you're trustworthy. Businesses see nondisclosure agreements as the solution to kicking off a confidential relationship.
With an NDA, employers can hold employees to holding on to secrets and information, whether it be client contact information, sales figures, formulas, etc. If the NDA is signed but not abided, legal action can follow.
With the rise of technology and social media, many businesses are using these agreements to help maintain control of company information. NDAs often include:
The definition of what specifically is considered confidential
The disclosure period, detailing how long the information needs to remain confidential
Exclusions from the confidential information
Obligations of the recipient (or hired employee) including how to use the confidential information, when it's appropriate to be shared and under what circumstances
Other provisions to the NDA, including state laws and jurisdictions
What information is protected with nondisclosure agreements?
NDAs can protect any information that's not general knowledge. What that information includes is up to individual companies to decide.
Most NDAs are one-way agreements, by which the recipient agrees to keep information from another party confidential and secret for one reason or another.
Nondisclosure agreements are common for many companies for protecting trade secrets and helping cement a confidential relationship between the parties involved.
As an independent contractor, some questions
Lindsay Olson recommends asking when reading an NDA include:
Can I list this company/client as a reference?
How long is the nondisclosure agreement for?
What information does it cover?
How am I protected?
Using resources online, such as our
nondisclosure agreement legal form, will help you outline your own NDA. Penalties and consequences for breaking a nondisclosure agreement
Breaking a nondisclosure agreement can cause major legal implications for the party who breaks it. A few of them have made the news, including the ex-Navy SEAL who turned his story about locating and killing terrorist Osama bin Laden by writing a book.
NDAs are meant to be understood and followed by the parties involved. Not only could you negatively impact the relationships with your superiors, but the reputation of your company as a whole.
Breaking an NDA can't only cost you your job, but it could cost you your freedom or your reputation.
Lawsuits-Because NDAs are legal documents, breaching them can cause harm to the company. When someone breaks an NDA, the sensitive information that was meant to be confidential leaks, which could affect business practices, financial stability or other major damage which could result in lawsuits for the business or your superiors.
Termination of employment-Breaking any kind of policy or contract in the workplace often spells disaster. NDAs are often used as a requirement before hiring, and violating a contract with a termination as a result is likely outlined in the contract.
Damage to your reputation-Businesses frequently work together, and burning a bridge by breaking an NDA is a quick way to harm your reputation. Breaching agreements or contracts can not only result in you losing your job, but clients and business connections, which could affect finding other employment.
Many business advisors suggest potential employees read and fully understand all aspects of a nondisclosure agreement and what it could mean for them should the contract be breached. Get started on your own
confidentiality agreement with help from our resource center. Unilateral and mutual NDAs: What's the difference?
It's important to know that there are two different kinds of NDAs: unilateral and mutual. A unilateral nondisclosure agreement means only one party is disclosing confidential information to another, such as when hiring a new employee.
A mutual NDA, however, means both parties are sharing confidential information that they want to protect, such as when companies consider merging and need to disclose information to one another.
Remember, laws vary from state to state for nondisclosure agreements, and it's important to consult with a lawyer or advisor to help find the best resolution.
Make sure you understand your NDA
Whether you're a business owner or a potential employee, it's important to know the ins and outs of any nondisclosure or confidentiality agreements. Seeking legal guidance to help build an appropriate NDA will ensure that necessary information is understood by the party who will sign it.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice,
please ask a lawyer.