Can your team keep a secret? What you need to know about Non-Disclosure Agreements

While you are busy working on The Next Big Thing, how can you be sure that your employees, partners, and service providers aren’t blabbing about what you are creating?

If you need to keep your business operations under wraps, you want to consider having your team members sign a nondisclosure agreement, also known as an NDA.

What is a Non-Disclosure Agreement?

A nondisclosure agreement is a confidentiality agreement between you and another party. It is used when one party wants to prevent the other party from disclosing its trade secrets or proprietary information to outsiders and to provide recourse if the other party violates the agreement. NDAs are commonly used to protect information like internal processes or methods, customer lists or contact information, or growth or sales plans. But you can use an NDA to protect any information that you don’t want disclosed to outsiders. It is one of the best ways to protect your business’s trade secrets, that confidential information that makes your business succeed over its competitors.

So who signs an NDA and what does it look like?

Basically, it is an agreement between you, the business owner, and another person or entity who has information about your business practices that you want to keep confidential. It could also be between you and another professional you work with in development of a product or your business, such as a service provider like a webmaster or software designer. It will protect you from an employee who leaves and tries to use the information he or she learned while working for you in his or her new business venture, and it will also protect you from other professionals you are working with disclosing your work product or methods to third parties.

What does a non-disclosure agreement contain?

A good nondisclosure agreement will have three main elements:

1) a description of the information being protected,

2) the obligations of the party receiving the information, and

3) the time limit of the agreement.

What information do you need to protect?

This is probably the most important section of your NDA. Since you can’t include the actual information you are trying to protect, you must describe its category or function in your business. For example, you might include “customer information stored in our database” or “marketing strategies related to developing software” as the confidential information. These types of descriptions should be broad enough to cover both currently existing and future confidential information in the same categories. You don’t want to limit the description of your customer information to that which existed at the time of the agreement if you intend to continuously add customers. However, you cannot protect information that the other party learned or discovered prior to or independently of your disclosure to them.

What are each party’s obligations?

This section is generally straightforward, and obligates the other party to hold the information that is the subject of the NDA in strict confidence, take measures to reasonably protect it from discovery by third parties, and otherwise not disclose it to a third party. In some situations, both parties to the agreement will be sharing confidential information, so they will have equal obligations to maintain the information they are learning in confidence.

How long will your NDA be in effect?

You can choose a specific time limit from the signing of the agreement, such as three or five years. You can also draft your NDA so that it is in effect for as long as information is being shared between the parties plus a specific amount of time after the business relationship ends. For instance, the parties might be working with confidential information to develop software over the course of 2 years but want the trade secrets to remain confidential for five years after the software development project is complete (or abandoned). In that situation, the agreement may be drafted to include both the duration of the business relationship and to continue on for a period of five years after the business relationship is ended.

Other than these three central elements, a well-drafted nondisclosure agreement will also include provisions for governing jurisdiction, attorneys’ fees, and arbitration requirements as deemed necessary by the drafting party.

You can find a Non-Disclosure Agreement here.