When your company needs to protect confidential or proprietary information, creating a non-disclosure agreement (NDA) form can achieve that goal. NDAs prohibit employees or other associates from disclosing specific, private information that they have access to in the course of employment or negotiations. Non-disclosure agreement forms can be included within broader employment and business contracts, or in the form of a standalone NDA.
Enforceable NDAs must comply with federal and state laws. Here’s what you need to know about NDAs and how to create your own.
What is a non-disclosure agreement (NDA)?
A non-disclosure agreement is a contractual agreement which protects a party’s confidential or proprietary information from being disclosed to unauthorized third parties. The type of information they protect varies, but typically includes proprietary information and assets such as:
- Contracts with other companies
- Customer or prospect lists
- Financial information
- Intellectual property
- Marketing or business plans
- Product prototypes
- Trade secrets
Your NDA must define the protected assets, without being so broad that it incorporates non-confidential information. That can include information already disclosed to the other party before they signed the agreement, or information publicly known or available at the time of disclosure. Most NDAs include agreed-upon penalties in the event of a breach.
Generally, non-disclosure agreement forms protect a “legitimate business purpose.” When deciding whether you need an NDA, consider who you’re asking to sign the agreement. For instance, asking a low-level employee without access to confidential company information to sign an NDA is generally not considered a legitimate business purpose. Best practices dictate that you limit NDAs only to employees or other parties who have access to your confidential information and assets. However, should you promote an employee to a position where they will have access to proprietary information, you could ask them to sign an NDA as a condition of the promotion.
Many states also prohibit non-disclosure agreements from including information about unlawful employment practices, such as discrimination, retaliation and harassment. If your NDA complies with all applicable state and federal laws, it should be legally enforceable.
What is an NDA form commonly used for?
Non-disclosure agreement forms are commonly seen in employment contracts, when hiring or promoting someone who will have access to proprietary information. They can also be used in business negotiations, where one or both parties are disclosing confidential company information, such as during mergers and acquisitions. Signing an NDA ensures that, should the bound party or parties make any unauthorized disclosures, the contractual penalties will apply.
Types of non-disclosure agreements
There are two broad types of non-disclosure agreements: unilateral and mutual. The main difference between the two is who they bind and protect.
Unilateral NDAs confer confidentiality obligations upon only one party, such as an employee. For example, a company might ask their new marketing employees to sign a unilateral NDA that prohibits them from sharing information about the company’s marketing plans and sensitive customer information. The employees cannot disclose that information to others, but the company is free to do so as they choose.
In contrast, mutual NDAs bind and protect two or more parties who are sharing confidential information, such as two businesses who are sharing confidential information while negotiating a merger. If either or both parties violate the NDA, penalties may apply.
How to create a non-disclosure agreement
Creating an enforceable non-disclosure agreement can be a challenge. It’s important to research applicable state and federal laws to ensure that your non-disclosure agreement forms are compliant and legally enforceable. Businesses might be tempted to use one-size-fits-all templates online to save time and money, but NDAs need to be specifically tailored to the situation, the parties, and the confidential information to protect. However, having a lawyer research and draft your agreement from scratch can be expensive and time-consuming.
SixFifty’s legal software tools are the perfect middle ground. Companies can create automatically generated, state-specific non-disclosure agreement forms tailored to their unique needs. Simply answer a few questions about your company and the information to be protected, download the automatically generated document, and have your legal team review. Because SixFifty monitors changes to the law in all 50 states, you can rest assured that your NDA will be legally enforceable upon creation.
Create your own NDAs with SixFifty
Researching and drafting NDAs in accordance with state law can be challenging—but ensuring that your non-disclosure agreement forms are enforceable is important. If they fail to comply with state and federal law, you could put your company’s confidential information at risk.
Instead of asking your in-house legal team to draft an NDA, or seeking outside counsel, let SixFifty do the hard work for you. Our legal tools pair accessible technology with real legal expertise, making it easier than ever to create compliant, enforceable agreements. Reach out today to schedule a product demo!
