Nondisclosure Agreement (NDA)
What is a nondisclosure agreement (NDA)?
Updated May 2, 2023
A nondisclosure agreement, or NDA, is a legally binding contract between two or more parties that establishes a confidential relationship and protects the information they share from being disclosed to outside parties. A nondisclosure agreement may also be referred to as a nondisclosure form, a confidentiality agreement, a confidential disclosure agreement, a proprietary information agreement, a secrecy agreement or a confidentiality clause within a larger legal document.
NDAs are commonly used for businesses entering negotiations with other businesses, perhaps for a joint venture or a merger into a single company. Nondisclosure agreements provide a framework of trust and allow the parties to share sensitive information without worrying that it will end up in the hands of a competing business.
For example, a commercial real estate company entering into negotiations with a technology company to upgrade the software and security systems at its buildings will want to ensure that all of its proprietary information is protected and secure.
Nondisclosure agreements also keep secret the terms and details of the potential deal itself from being discussed by the parties and disclosed to the public before everything is in place and ready to be announced—or the parties decide not to move forward with the business venture.
NDAs are legally binding contracts between two or more parties that establish confidentiality. Credit: Scott Graham/Unsplash
In real estate, an NDA may outline that a broker or prospective buyer can share sensitive information about a deal with certain parties, such as lenders, partners and attorneys, only insofar as it’s necessary for them to evaluate the potential deal or sale. The agreement might stipulate specific restrictions, such as barring a prospective buyer from contacting an owner’s tenants, lenders or employees without prior approval. Or speaking to the news media about a property. Or they might have clauses preventing anyone who was granted access to the confidential information from cutting a side deal.
What's included under an NDA?
For NDAs in general, the information being protected may include a wide range of things that businesses want to keep confidential, including current clients and potential customers, trade secrets, marketing and advertising strategies, secret recipes, new products, short- and long-term business plans and proprietary software. NDAs are particularly popular in technology fields.
Companies seeking investors or funding may also use NDAs to prevent their competitors from getting inside information. Similarly, start-ups seeking money from venture capitalists may want assurances that their ideas won’t be stolen and given to a competing start-up.
Nondisclosure agreements are also used by some companies that may require that new employees or ones working on new secret projects sign an NDA if they have access to sensitive information about the company and its clients. Companies may also want outside consultants, accountants and independent contractors with access to sensitive data to sign an NDA. They are also common in upper management job interviews and when companies are interviewing outside vendors.
While each NDA is unique, with specific information about what is to remain confidential and for how long, in general there are two types of nondisclosure agreements—mutual and unilateral.
In mutual agreements, both parties agree not to share each other’s intellectual property or sensitive information. Mutual NDAs are common when two businesses are working together on a deal.
In a unilateral agreement, only the recipient of the information is required to keep silent. These are also known as one-sided, nonmutual or one-way NDAs. Unilateral agreements are common when employers want assurance from new employees or consultants who have access to sensitive or confidential information that they will not disclose it. In these NDAs, the employee is the only one signing the agreement.
Unilateral agreements may also be created to protect the copyright for information and research gathered by the employee or a contracted researcher. The agreements might also protect the company’s copyright for products or inventions that get developed during someone’s employment.
What happens if someone breaks an NDA?
Because an NDA is a legally binding contract, one party may sue the other and seek monetary damages if the agreement is breached and confidential information is disclosed. The offended party may also seek court action to prevent further disclosures. The penalties for breaking the NDA may also be spelled out in the agreement and may include damages in the form of lost profits or even criminal charges. In real estate, the penalties might include forcing the brokers to repay their commissions.
Templates and samples of nondisclosure agreements are available online from a number of legal websites.