In both business and legal situations, being asked to sign a confidentiality agreement or nondisclosure agreement (NDA) is becoming increasingly common.  Certain information about the company’s business, its finances and its operations needs to be legally protected to ensure the company keeps its competitive advantage.  NDAs are used to protect such sensitive information.

What’s an NDA, anyway?

NDAs, also commonly known as confidentiality agreements, are used to safeguard a business’s proprietary information.  It’s a legally binding contract that creates a confidential relationship between a person who holds some kind of trade secret (or other information) and a person to whom the secret will be disclosed.  Whether you’re being asked to sign an NDA or asking another person to, if information leaks, there can be serious legal repercussions.

What Information is Considered Confidential?

Proprietary information is a general term to describe different types of information that is sensitive and/or has value to the owner and if disclosed, could irreparably harm the owner.  This may mean test results, customer lists, software, passwords, system specifications and other data.

Consider the following basic criteria for determining if information in question is confidential:

  1. The information is not common knowledge in a field.
  2. The information gives an advantage to the business who owns the information over others.
  3. The business who owns the information makes reasonable efforts to protect the information from disclosure.
  4. Information, records, software, designs, and other innovations and work products that are developed on behalf of a company or are costly to develop, or that has intrinsic value.

What Information is Not Considered Confidential?

A confidentiality agreement is not a blanket commitment by the parties to protect all information.  While the parties must agree to definitions and terms to describe what is protected, there are types of information that will not be considered proprietary information and cannot be included in a nondisclosure agreement.  For example:

  • Anything that is general knowledge
  • Anything that can be found in a public record
  • Any information that the receiving party has prior knowledge of or gained from different sources other than the party seeking to protect the information
  • Any information that can be subject to a subpoena may or may not be included

Do You Need an NDA?

If you answer yes to two or all of the following questions, you likely need an NDA to protect your business:

  1. Would an employee telling a competitor about your internal operations hurt your business in a way that could not be repaired?
  2. Would a vendor or client telling another company in our industry about our sales arrangement with them hurt our business in a way that could not be repaired?
  3. Would I want the grounds to fire an employee if I found out they were telling others outside the company about our “secret recipe”?

In order to make sure your NDA is composed properly for your business and what you need, we highly recommend that you consult your attorney.