When To Use Non-Disclosures for Your Business

Use non-disclosure agreements for your business when hiring employees to protect trade secrets, proprietary data, and maintain a competitive advantage. An NDA restricts the receiving party from sharing confidential information about the disclosing party, subject to a breach of contract for violating the NDA. Unilateral NDAs are generally for employees or independent contractors, and mutual NDAs are for business negotiations and exploring partnerships while still putting legal protections into place for their intellectual property. Enforce terms of an NDA through injunctive relief.

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What Do NDAs Do?

Business owners always face potential threats to their business. Everyone seeks an edge to beat the competition, and former workers may turn around and take that edge to another company for their own gain.

Non-disclosure agreements (NDAs) help protect confidential and important information as you bring people into your inner circles. “Non-disclosures are essential in some endeavors,” says Jim Astrachan, an intellectual property attorney at Corey Tepe in Columbia, Maryland.

“NDAs are one way of giving yourself both contractual protections and evidence in a trade secrets theft claim,” adds Jan Berlage, a business litigation attorney at Gohn Hankey & Berlage in Baltimore. These agreements are fairly common in business contexts. “I helped a client with one two days ago.”

Whenever a new employee joins a business and sees privileged or sensitive information that gives it a competitive edge, the business should consider a non-disclosure or confidentiality agreement. “There is an assurance they’re not going to disclose it, and not going to use it, and not going to build on it,” Astrachan says.

What counts as proprietary information is always up for debate, Berlage says. “Courts generally take a flexible view on whether information is protected. Is it something no one knows about? Does secrecy give you a competitive advantage? Have you kept this information secret? If the answer to those questions is ‘yes,’ then typically you will have an enforceable agreement.”

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Information Covered By NDAs

The two common types of information covered under NDAs are “that which is truly proprietary in nature or that which is a trade secret which has its own statutory non-disclosure,” says Astrachan.

For a court to restrict an individual’s freedom of speech, there must be a valid reason for the gag order. Information such as customer and client lists, financial information and business plans, and research and development of new products are examples often covered by NDAs.

In addition, there are trade secrets. The classic example is the formula for Coca-Cola. To hold value, a trade secret must be kept secret, meaning you have protections in place that prevent the disclosure of confidential information.

An NDA is a critical piece of evidence if you’re trying to bring a theft of trade secrets action. The Federal Defense of Trade Secrets Act requires that you “tried to protect the information and a non-disclosure will be exhibit one in showing you’ve gone out of your way to protect this information,” Berlage says.

As a business owner, you have the responsibility to protect your company against sharing information. There are different views on how NDAs should be utilized.

“Some may say, ‘Get it signed; it will have a chilling effect, and we won’t have to worry about enforcing it.’ Some use them as offensive tools, knowing they aren’t enforceable but getting people to sign them and then taking the position that, ‘If six out of 10 people we threaten with enforcement acquiesce, we’ve done a good job,’” Astrachan says.

“They should be used sparingly. They can’t be overly broad if you want to enforce them.”

NDAs in Legal Proceedings

NDAs may also help business owners in legal proceedings. “Settlement agreements often have non-disclosures and, many times, they protect a business from information that you don’t want the world to know about from getting out,” Berlage says.

This should not be misinterpreted as a way to cover up criminal misdeeds. NDAs are simply contract protections and cannot be used to cover up criminal behavior.

Courts generally take a flexible view on whether information is protected. Is it something no one knows about? Does secrecy give you a competitive advantage? Have you kept this information secret? If the answer to those questions is ‘yes,’ then typically you will have an enforceable agreement.

NDAs and Public Figures

In 2018, non-disclosures came into the spotlight regarding President Donald Trump, as staff members who signed NDAs sought to speak out.

“When we’re dealing with information that can have an adverse impact on someone, people enter NDAs all the time. You do have to ask if they are enforceable and whether the penalties are enforceable, because damages are so punitive,” Astrachan says.

“Talking about information that is gravely in the public interest — when you’re talking about the most public figure in the world and information that may affect their ability to do the job, you’re talking about penalties that are out of proportion to the disclosures.”

And on top of that: “What are the damages when the information is already out there? You can’t un-ring a bell,” he adds.

Find Legal Help

Whether you’re just starting a business or are a seasoned executive, you will always have information you want to keep private. You must be certain that the information you are protecting is proprietary. To be certain you’re fully protected, contact a reputable, experienced attorney for legal advice.