When to Use Non-Disclosures for Your Business

As a business owner, there will always be threats to your business. Everyone is seeking an edge to beat the competition, and your former workers may turn around and take your competitive edge to another company for their own gain.

Non-disclosure agreements (NDAs) are a way to fight against losing your confidential and important information as you bring people into your inner circles. “Non-disclosures are essential in some endeavors,” says Baltimore attorney Jim Astrachan.

“[NDAs are] one way of giving your protections both contractual protections and evidence in a trade secrets theft claim,” adds Jan Berlage, also an attorney in Baltimore. These agreements are fairly frequent in a business context. “I helped a client with one two days ago.”

Whenever a new employee is brought into a business and sees privileged or sensitive information that give you competitive edge, a non-disclosure or confidentiality agreement should be considered. “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 are ‘yes,’ then typically you will have an enforceable agreement.”

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 statutorily non-disclosure,” says Astrachan. In order for a court to prevent the freedom of speech of an individual, there must be a reason behind 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.

On top of that there are trade secrets. The classic example is the formula for Coca-Cola. In order to be able to hold value, a trade secret must be shown to have been secreted away—that there are protections to prevent the disclosure of confidential information. An NDA is a critical piece of evidence if you are 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 may also be of use to 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. The protections of an NDA are simply contract protections and cannot be used to cover up criminal behavior.

In 2018, non-disclosures came into the spotlight in regard to President Donald Trump, as staff members who signed NDAs sought to speak. “When we’re dealing with information that can have an adverse impact on someone, people enter into those all the time,” Astrachan says. “You do have to ask if they are enforceable and whether the penalties are enforceable, because damages are so punitive. Talking about information that is gravely in the public interest: When you’re talking about the most public figure in the world—that may affect the ability of this person to do his job—you are 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.

Whether you are just beginning a business or are a seasoned executive, there will always be protected information you want to keep private. You must be certain that the information you are protecting is proprietary. To be certain that you are fully protected, contact a law firm and find reputable and experienced attorney for legal advice and to build the NDA that is right for your business, before it’s too late. 

For more information on this area of law, see our intellectual property overview.