What’s a Non-Disclosure Agreement? Get Informed Here

In contract law, a non-disclosure agreement, or NDA, is a legally enforceable document in which two or more parties agree to keep nonpublic, valuable, and sensitive information they convey to one another secret.

NDAs are widely used in business settings to stop proprietary and confidential data about a company from being disclosed to competitors or third parties without authorization. 

This information includes trade secrets (formulas, manufacturing processes, product designs, etc.), business strategies, intellectual property, client lists, and occasionally, information about unethical behavior like sexual harassment or fund embezzlement at a company.

The knowledge that is kept under wraps often provides a business with a competitive edge that would likely disappear if it were made public.

Before engaging in a business relationship or significant financial transaction, you might need to sign an NDA, sometimes also called a secrecy agreement, confidentiality agreement, or proprietary information agreement.

For example, if you’re a California business owner, you may have an independent contractor sign a non-disclosure agreement, obligating them to keep all confidential data they come across while working for you or after they leave to prevent them from sharing it with others or using it to launch a rival company.

Additionally, if you’re seeking funding for your company, you’ll have to discuss sensitive operations and financial data about your business with potential investors and brokers. Any party involved in the fundraising talks may be prohibited by an NDA from divulging any details regarding your business plans or procedures to anyone else.

To secure your rights, contact the California contract attorneys at Gallagher Krich, APC to find out if you need an NDA before entering into a new business relationship — particularly prior to talking about licensing or selling your IP, giving workers access to trade secrets or other proprietary information, or doing a pitch to potential investors or buyers of your company.

Which Types of NDAS Are There in California?

Two main types of non-disclosure agreements exist:

• Unilateral NDA

When recruiting employees, contractors, or consultants who will have access to confidential company information, many businesses utilize this form of NDA, also referred to as a one-way non-disclosure agreement.

In it, one party (the business) grants access to or communicates privileged details to another party (the employee), and the recipient party pledges to keep the information private.

• Mutual NDA

Here, two parties exchange secret information and each commits to not reveal the other’s info.

Mutual NDAs tend to be used in talks about business joint ventures and mergers because they let parties divulge sensitive company information, enabling them to better understand each other’s capabilities, without worrying that that data could fall into the wrong hands.

To be enforceable, a well-written mutual or unilateral NDA should typically be one page long and contain the following key details.

• Parties to which the NDA applies. Who is bound by the terms of the non-disclosure agreement, including their names and addresses, must be expressly stated in the NDA. These could be staff members, independent contractors, vendors, or third-party consultants.
• What constitutes confidential information? This describes the nonpublic information that the parties wish to keep private as well as the reasons it is kept secret. It can be anything from customer lists to new product concepts.
• NDA time frame. An NDA can have an indefinite term, such as when dealing with trade secrets, or a set expiration date.

As an illustration, the constant usage of secrecy mechanisms, among them indefinite NDAs, has allowed the Coca-Cola recipe to remain hidden for over 130 years.

One to ten years following the last day of employment may be the duration of the NDA if it is used in an employment setting.

• Return of information. Once a business collaboration ends, an NDA may demand that the person who received sensitive information delete or return it.
• Remedial actions for breach: This section describes what happens if someone violates the NDA and assigns liability for things like legal fees.

To ensure you don’t exclude any important information in your non-disclosure agreement, it’s wise to seek legal advice when drafting it.

What Happens if an NDA Is Breached?

It is considered a breach of contract when one or more parties expose data despite having signed an NDA.

A broad spectrum of legal consequences could arise from the breach, such as financial penalties, lawsuits, and even criminal charges that could put the person who revealed the information in jail.

For example, if a firm is affected by an NDA breach, it can sue or pursue alternative dispute resolution mechanisms to uphold the agreement and recover damages for losses incurred due to the violation.

An individual’s or business’s good name may also be compromised if they break an NDA, which can result in a decline in trust, lost business opportunities, and the termination of employment for workers who fail to keep company secrets hidden.

Take note that if there is criminal conduct involved, a party may lawfully violate a non-disclosure agreement.  California has implemented legislation restricting the enforceability of non-disclosure agreements in recent years, especially when it comes to situations involving sexual harassment, discrimination, or other illegal activity.

For instance, in response to the #MeToo movement, California made it illegal for businesses to use NDAs to silence employees who have experienced sexual assault or harassment after the matter has been settled.

A lawyer should be consulted beforehand if you’re thinking of violating any legal agreement.

Protect Your Business Interests With Solid Non-Disclosure Agreements

Tight non-disclosure agreements are necessary to protect your trade secrets, client information, and other sensitive data in today’s cutthroat business world. 

The contract law attorneys at Gallagher Krich, APC are experts in drafting, reviewing, and negotiating NDAs. With over 30 years of combined legal experience, we can prepare watertight non-disclosure agreements for you that shield proprietary and confidential information belonging to your business from competitors.

Facing problems with an existing NDA? Additionally, Gallagher Krich, APC, can offer you the strong defense you require in an NDA dispute to safeguard the assets that give your company a competitive edge.

Don’t let your company get exposed – give us a call at (858) 926-5797 or send us a message to schedule a free consultation where we can go over how an NDA can protect any proprietary data your business has!