NDAs, or non-disclosure agreements, are legally enforceable contracts that create a confidential relationship between a person who has sensitive information and a person who will gain access to that information. A confidential relationship means one or both parties has a duty not to share that information.

Non-disclosure agreements are also known as confidentiality agreements, confidentiality disclosure agreements, and non-disclosure contracts. You may encounter one at the beginning of a business relationship or large financial exchange. For example, an employer or client may ask a new hire or contractor to sign a confidentiality agreement to protect the organization’s sensitive data.

An NDA specifically focuses on an individual’s or organization’s information privacy, which differs from other business contracts like service or sales agreements that focus on the terms and conditions of service or transactions.

Why Non-Disclosure Agreement 

The purpose of a non-disclosure agreement is twofold: confidentiality and protection. Information protected by a confidentiality agreement can include everything from product specs to client rosters. Business models, test results and even embargoed press releases or product reviews can all be covered by an NDA. 

An NDA creates the legal framework to protect ideas and information from being stolen or shared with competitors or third parties. Breaking an NDA agreement triggers a host of legal ramifications, including lawsuits, financial penalties, and even criminal charges. NDAs offer a level of protection to your business so that even accidental breaches are covered.

There are three essential functions of an NDA:

  • Identifying protected information: By drawing a line between what information is confidential and what can be shared, NDAs classify information. This allows parties to work freely within the boundaries created by the confidentiality agreement.
  • Protecting sensitive information: Signing an NDA creates a legal obligation to keep sensitive information confidential. Any leak of that information is a breach of contract.
  • Protecting patent rights: Because public disclosure of a pending invention can sometimes void patent rights, an NDA can protect an inventor as they develop their new product or concept. 

Limitations of NDAs 

Non-disclosure agreements (NDAs) have some limitations, including:

  • Enforcement challenges: Enforcing an NDA can be challenging, particularly if the information has already been disclosed or if the scope of the NDA is too broad. Even if a breach of the NDA is identified, it can be difficult to prove damages or to obtain an injunction.
  • Public interest: In some cases, there may be a public interest in disclosing certain information, such as in cases of illegal activity, public health and safety, or government transparency. NDAs cannot be used to prevent the disclosure of information that is in the public interest.
  • Limited protection: An NDA only provides protection for information that is specifically identified and defined in the agreement. If information is not covered by the NDA, or if it is disclosed in a way that is not prohibited by the agreement, it may not be protected.
  • Time-limited protection: NDAs are typically time-limited, meaning that they only provide protection for a specific period of time. After the NDA expires, the information may no longer be considered confidential and may be disclosed freely.
  • Limited jurisdiction: NDAs are typically governed by the laws of a specific jurisdiction, which may limit their effectiveness in other jurisdictions. In cases where the disclosing party is located in a different jurisdiction than the receiving party, it can be difficult to enforce the NDA.
  • Reputation risks: In some cases, the use of NDAs can lead to negative publicity or damage to a company’s reputation. This can occur if the NDA is seen as an attempt to cover up wrongdoing or to silence victims of harassment or discrimination.

Of course, not all information can be protected. Public records, including SEC filings or company addresses, are not covered by these confidentiality agreements. The courts can also interpret the scope of an NDA in ways that one or more participants may not have initially expected. If the information covered in an NDA is revealed in another way—like through a court proceeding or subpoena—then the NDA no longer applies.

Additionally, managing multiple NDAs as an organization quickly becomes untenable without standardized language. When the number of NDAs starts reaching into the hundreds, reviewing, negotiating, and concluding unique contracts manually is extremely demanding and time-consuming. A standard, adaptable confidentiality agreement addresses this issue, but only if the organization takes the time or consults with experts to create a standard NDA that meets all its needs.

Consequences of Breaking an NDA? 

The consequences for breaching a non-disclosure agreement (NDA) can vary depending on the terms of the agreement, the nature of the information that was disclosed, and the jurisdiction in which the agreement is being enforced. Here are some examples:

  • Legal action: The party that was harmed by the breach of the NDA can take legal action to enforce the agreement and seek damages for any losses that were incurred. This may involve filing a lawsuit, seeking injunctive relief, or pursuing alternative dispute resolution.
  • Financial penalties: NDAs often include provisions for financial penalties in the event of a breach. These penalties may be outlined in the agreement itself or may be determined by a court as part of a legal action.
  • Reputation damage: Breaching an NDA can damage a person’s or company’s reputation, particularly if the breach involves sensitive or confidential information. This can lead to loss of trust and future business opportunities.
  • Termination of employment or contract: Breaching an NDA can result in  termination of employment or contract, particularly if the agreement was a condition of the employment or contract.
  • Criminal charges: In some cases, breaching an NDA can result in criminal charges, particularly if the information that was disclosed was related to national security, government secrets, or other sensitive information.

Overall, the consequences for breaching an NDA can be significant, both in terms of legal and financial penalties and damage to reputation. Companies and individuals should take NDAs seriously and ensure that they are complying with the terms of the agreement to avoid these consequences.