Last updated June 20, 2023
Written by
Kyle Adam Kyle Adam, BComm
Kyle Adam is a seasoned content creator, editor, and SEO specialist with over four years of experience. Presently, he serves as Senior Marketing Writer and Editor at LawDepot. Holding a...
Reviewed by
Alan Collins Alan Collins, BCL
Alan Collins is a Legal Writer and Custodian of Records for LawDepot and a member of the Alberta Law Society. Interests in literature, language and history are what prompted him to stud...
|
Fact checked by
Rebecca Koehn Rebecca Koehn, BSc, MFA
Rebecca Koehn has been working in content creation and editing for over ten years and search engine optimization for over five years. Koehn is the Content Marketing Manager for LawDepot...
What is a Non-Disclosure Agreement (NDA)?
A Non-Disclosure Agreement (NDA) is a binding contract that requires all signing parties to keep specific information confidential. Non-Disclosure Agreements are common in business and professional settings.
When a recipient of confidential information signs an NDA, it creates a written record that they agree to not reveal the specified information to any unauthorized people or organizations. If a recipient fails to keep the information private, the disclosing party may have the grounds to take legal action against them.
A Non-Disclosure Agreement is also called a/an:
- NDA contract
- Confidentiality agreement
- Confidential disclosure agreement
Although Non-Disclosure Agreements can be used in a variety of situations, our template is ideal for people navigating employment and business relationships where confidential information is being shared.
What can I use a Non-Disclosure Agreement for?
An NDA can be used in a variety of situations, such as the following scenarios:
1. Hiring an employee
If you're hiring an employee who will have access to confidential information on the job, have them sign an NDA before hiring. This is especially important if some sensitive details will be discussed before the candidate becomes an employee. Confidential information could include your business' marketing strategies, customer data, future ideas, and more.
A Non-Disclosure Agreement can protect you and your business interests by deterring your employees from sharing or misusing confidential information. If the employee breaches the agreement, you have the right to take legal action against them.
Alternatively, if you don't want to create NDAs for your employees, and won't need to discuss any trade secrets prior to hiring, you can include confidentiality clauses in Employment Agreements that will protect your sensitive business information.
2. Hiring a contractor or consultant
If you're hiring a contractor or consultant who will have access to confidential business information while working with you, have them sign an NDA beforehand.
Like with employees, contractors and consultants may need access to your business's marketing strategies, customer data, or more to perform their role. With NDAs, you can provide them with the information they need to succeed while protecting your interests.
In addition, ensure you always use Independent Contractor Agreements and Consulting Agreements when hiring contractors and consultants.
3. Selling a business
If you're selling all or part of your business through the sale of shares or assets, a prospective buyer may complete their due diligence by requesting to see your financial books or other confidential records. Before you disclose anything, present them with an NDA and ask them to sign.
When selling a business, confidential information can include knowledge or documentation relating to employees, trade secrets, clients, profits, or losses.
4. Discussing an invention or idea
If you plan to discuss an invention or piece of intellectual property with someone, have them sign an NDA before disclosing any information.
To evaluate an invention, investors or potential buyers often require access to confidential information about it before deciding whether they want to be involved. An invention could be a:
- Product
- Plan
- Design
- Recipe
A Non-Disclosure Agreement allows investors, buyers, and other collaborators to make informed decisions without having the right to share or misuse your intellectual property.
Generally, you shouldn't describe an invention in an NDA to ensure that the evaluator can't read the agreement, gain knowledge about your invention, and refuse to sign. By excluding a description, the evaluator must sign the NDA before disclosing any information about the invention. The mere description of your invention could allow someone else to steal your idea.
Why are Non-Disclosure Agreements important?
Creating a written Non-Disclosure Agreements is important because it can:
Types of Non-Disclosure Agreements
Non-Disclosure Agreements can either be unilateral or mutual.
Under a unilateral NDA, only one party agrees not to disclose confidential information. Therefore, only the recipient is bound to confidentiality. Unilateral NDAs are also known as non-mutual or one-way NDAs. Our template only creates unilateral agreements.
Under a mutual NDA, also known as a bilateral NDA, both parties disclose and receive confidential information and protect their interests in one document. For example, a business may have to provide a contractor with customers' personal information and, in return, the contractor may disclose a trade secret about how she handles the data. If both parties want to protect their information, they can sign a mutual NDA.
If you need a mutual agreement, you can use our template to create two documents with the parties switching roles.
In a Non-Disclosure Agreement, you can choose to protect the following types of information:
- Customer information, such as customer names, contact information, and purchase histories. A customer's purchase history may include descriptions of products and services they've purchased, leased, licensed, or received from your business.
- Intellectual property, such as information related to creating and selling a product or service, such as copyrights, patents, and trade secrets (including computer technology).
- Marketing, product, and service information, such as production processes, research, pricing and billing policies, and marketing and advertising techniques.
- Business operations and accounting information, such as names and contact information for the employees and employer, purchasing and internal cost information, and information related to payroll and other financial reports.
Confidential information can't be common knowledge or already in the public domain. As a result, confidential information can't include the following:
- Information that is well known or public knowledge
- Information that becomes publicly known through no fault of the recipient
- Information that the recipient already knows before they receive it from the disclosing party
- Information created by the recipient through independent research without the use of the disclosing party's confidential information
- Information rightfully obtained from a third party regarding the disclosing party's business
How do I write a Non-Disclosure Agreement?
To create a Non-Disclosure Agreement, include the following information:
- The parties' names and contact information
- The length of the non-disclosure period
- The scope and definition of the confidential information
- The obligations of the Non-Disclosure Agreement
- The ownership and return information
Our Non-Disclosure Agreement template allows you to simply and effectively create a document that contains all of the necessary components of a binding NDA. Additionally, our template creates a document customized to your state's laws.