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Key Provisions in a Well-Designed Nondisclosure Agreement

    

Non-disclosure agreements (NDAs), sometimes referred to as confidentiality agreements, are crucial instruments for companies with valuable intellectual property (IP) or other types of sensitive data. Sometimes the core principles of these agreements are integrated into an employment contract or appended to a non-compete. Irrespective of whether the terms are incorporated into a larger agreement or outlined in an independent instrument, there are some specific matters that must be addressed. Obviously, any agreement should identify the parties who are bound by the terms contained within the particular document, and NDAs, in particular, must make this abundantly clear. Here are the other key provisions that must be included:

Definition of Confidential

Defining that which constitutes “confidential information” is critical to ensuring that an NDA is unambiguous. Although it is tempting to make this an incredibly broad definition, at least from the owner of the information’s perspective, this is generally unfeasible, as employees cannot be barred from speaking about all facets of their work. Granted, employees cannot divulge trade secrets, patents, or other unique company information to prospective employers down the line. Nevertheless, they must be able to describe their roles and responsibilities within the company at some point, and this may require the disclosure of some aspects of the company’s business and operations.

 

For this reason, it is important for company leaders to focus on establishing a definition that includes data that adds value to the company and could be utilized by a competitor to the company’s detriment. This will no doubt be a bit difficult to pin down precisely. However, the more specific a definition is, the clearer it is to everyone involved and thus less likely for there to be inappropriate divulgence.

Explanations of Disclosure

Given that an NDA is intended to preclude an individual from disclosing confidential information, there must be guidance on that which constitutes disclosure as well. In some cases, disclosure may require a concrete action such as forwarding company documents. However, in other situations, merely mentioning something in passing may be construed as disclosure, as the person who heard the information, inadvertently or otherwise, may be able to use it to his/her advantage.

 

In most cases, if a company does not want information shared, that means it should not be shared in any manner, both written and verbal. Nonetheless, the company’s view of disclosure must be clearly explained in the agreement to avoid confusion.

Information Covered and Applicable Exclusions

Although there should be a definition explaining confidential information, it is wise to include the specific information that the agreement is intended to cover as well, perhaps in a list form. This list may be fairly generic with broadly worded items such as company IP, company finances, and company clients. The goal of the agreement is to make it clear what information the company expects the other party to protect.

 

Of course, in addition to stating which information must be safeguarded, it is useful to explain any information that is excluded. For example, a company may not care if its employees discuss the products it makes or pricing if that information is readily discernible on a public website. However, the cost of producing those items or the specific parts utilized to make them may be confidential, and thus any such distinctions must be apparent.

Type and Length of Agreement

It is extremely important for the agreement to explain whether it applies to both the company and the other party or just the other party. With respect to NDAs for company employees, these are usually one-way agreements with the company requiring the employee to keep company information confidential. But, there are some cases in which an NDA is meant to bind multiple parties, such as when several companies engage in joint research and development, and thus if the agreement is multi-directional, this must be stated.

 

In addition to clarifying who is bound, it is vital to explicitly state for how long that person or company will be bound. Although these agreements are designed to protect entrepreneurs, they cannot be overly restrictive, and if they are, a court may strike down an agreement in its entirety.

 

As with any contract, NDAs require a careful balance to ensure they are clear yet concise and specific but not overly restrictive. Ultimately, the primary goal should be to protect valuable data without hindering innovation or an employee’s professional mobility.

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