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What is a Non-Disclosure Agreement?

A Non-Disclosure Agreement is a legal document that requires the other named person or entity to keep certain information secret. They are very common in business settings, as business owners do not want to share unique information that gives them an edge in their market without some form of protection. Examples of information that can be covered by an NDA include:

  • Client lists
  • Process information
  • Software developed or used in-house
  • Order history
  • Marketing plans
  • Schematics for new products

This document sets out the items that are considered confidential and what will happen if this information is shared in violation of the agreement. Often, the person or entity holding the protected information named in the NDA can legally require the other person to pay monetary damages for any losses associated with its unauthorized disclosure.

The most significant example is when an employee leaves one employer to work for a competitor. In this situation, the NDA would prevent the employee from sharing trade secrets and client lists with their new employer. Employers may decide to go one step further and have employees sign Noncompete Agreements, which prevent employees from working for direct competitors or within a certain geographical range (these are not enforceable in some states). Another common example is when a freelancer or independent contractor signs a Non-Disclosure Agreement to protect the confidential information belonging to a client.

There are also Mutual Non-Disclosure Agreements, where both parties agree to keep each other's secret information private. These are often used when creating a new product for a company, developing a new invention, or for partnerships between two or more business entities.

Is a Non-Disclosure Agreement legally binding?

Yes, but only if you use a properly drafted agreement. There are situations where an NDA may not be enforceable if it's too broad. For example, if you restrict employees from ever using any information that they learned as an employee, your NDA may be set aside and essentially ignored.

Instead, you need to create an NDA that is tailored specifically to your needs. Providing a list of examples helps to ensure that the document will be legally binding. If you are specifically concerned about the use of client lists, for instance, there is no need to provide additional restrictions.

What should be included in a Non-Disclosure Agreement?

An NDA does not have to be overly complicated, but it should be specific enough to meet your needs without being too broad. Many are not very long. You can include additional terms, but these are the basic provisions:

Party identification

The parties to the agreement will generally include a very straightforward description of the business, person, or entity with the secret information and the person or entity that must keep the information private.

Definitions of confidential information

You should specifically set out what information you are targeting with the agreement. In some cases, it can be something as definitive as any document that is marked "confidential." You may want a broader description or a list of several items that are considered confidential in other circumstances.

The Scope of the agreement

You should decide how restricted you want the agreement to be. For example, should the information not be shared with anyone? Or do you only want to restrict sharing information with competitors? 

Any exclusions to the agreement

There may be certain information that you want to specifically list as not being confidential. Skills that employees gain while working for you might be a good example.

Other examples might include already publicly known items or situations where they could have acquired the information from somewhere other than the person or entity with the protected information. These items likely would not be protected if the matter was presented to a court regardless, so it certainly does not hurt to include them as a specific exclusion.

The length of time for the agreement

You can specifically set out how long you want the NDA to last. In some situations, you can include no end date at all. In other situations, you may need to include an end date to ensure that your NDA is enforceable. How this item is addressed will depend on the information that you are restricting and how restrictive your NDA may be within your jurisdiction.

In general, there is a "reasonableness" requirement that must be met, but state laws are not always clear about what "reasonable" in the context of a non-disclosure agreement really means.

The Rocket Lawyer Non-Disclosure Agreement is electronic signature-ready using Rocket Sign. If you are using your own document, you can upload it to your Rocket Lawyer account and add text, date, and signature fields for electronic signing as well.

How long do Non-Disclosure Agreements last?

You can sometimes include the words "no end date" in a non-disclosure agreement, meaning the information should be protected indefinitely. However, it is important to be realistic about the length of time. Consider whether the information you are trying to protect will actually have any value in a year, two years, five years, etc.

By limiting the timeline, your NDA is more likely to be considered "reasonable," and therefore legally enforceable. If the NDA is too restrictive and lasts forever, it may be set aside and ignored in some situations.

Make sure your NDA is effective and enforceable

Most businesses have their "secret sauce" or unique insight that gives them leverage in their market. A Non-Disclosure Agreement can help you maintain confidentiality of sensitive information, but you have to take a balanced approach when drafting an NDA. Consult with a Rocket Lawyer On Call® attorney for fast and affordable answers to your questions about Non-Disclosure Agreements and your specific situation.

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.

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