A non disclosure agreement is a legal contract in which the parties involved agree to keep the information included private. This type of contract creates a confidential relationship between the parties, and protects the confidential or proprietary information outlined in the agreement, as breaching a non disclosure agreement generally subjects the party to severe civil penalties. To explore this concept, consider the following non disclosure agreement definition.
A non disclosure agreement is a legal contract used to protect information that must be shared by one party to another in order to do business, but which must be kept confidential or secret. Also referred to as an “NDA,” “confidentiality agreement,” or “proprietary information agreement,” such a contract outlines the nature of the confidential information, without disclosing it specifically. The contract restricts one party involved from sharing the other party’s information with outside parties without first having proper authorization.
NDAs are most commonly used in businesses when the need to establish a confidential relationship with employees or contractors arises. Such information may include trade secrets, proprietary information, client lists, database information, or any other information considered to be vital to the business.
Richard is hired on as a chemist at a high-tech pharmacological laboratory. The research at the laboratory and the formulas used in its experiments and drugs are kept secret to prevent other drug companies from obtaining any of the information and duplicating their work. As a condition of employment, Richard is asked to sign a non disclosure agreement that requires him to keep any information pertaining to the work at the lab secret.
Once Richard signs the company’s non disclosure agreement, he is legally bound to keep all of their information private. Sharing any of the information could result, not only in Richard’s termination, but in a civil lawsuit for breach of contract.
In general, a standard non disclosure agreement is used to ensure a party does not share confidential information that is disclosed to him in a business transaction, or in the course of his employment. A standard non disclosure agreement outlines the information that should be protected, which varies depending on the situation. The Small Business Association offers information for businesses, including the use of non disclosure agreements.
There are five basic elements that should be part of any standard non disclosure agreement. These include:
Before a person signs an employee non disclosure agreement, he should read it carefully and make sure he understands all of the information presented. Such agreements are often presented during the hiring process, and, if the employee refuses to sign, the employer can refuse to hire him. Some companies include the non disclosure agreement in the employee handbook.
When two or more parties plan to share confidential information, which is commonly done between business entities, or between entrepreneurs collaborating on a new project, a mutual non disclosure agreement protects the proprietary information of both parties. Also referred to as a “bilateral non disclosure agreement,” a mutual non disclosure agreement binds all parties to keep the specified information secret.
Mary and George decide to go into business together, using Mary’s new clothing designs and George’s innovative production techniques to launch a new line of clothes. Both Mary and George want to protect their ideas, while sharing them in order to do business together. A mutual non disclosure agreement outlines the types of information each party brings to the business which must be kept confidential. It may also specify that any information created or discovered during the course of the business relationship must also be kept secret.
When a person signs a non disclosure agreement, he has entered into a legally binding contract to keep the specified information private. Breaching a non disclosure agreement is a serious issue that can result in large-scale legal consequences. The laws governing confidential information and trade secrets are spelled out in the Uniform Trade Secrets Act. Information protected by law includes patterns, drawings, devices, programs, techniques, and much more.
When a disclosing party believes his non disclosure agreement has been breached, he should review the original contract to determine the remedies available to him, as well as any processes specified. The next step is investigating the breach to ensure there is concrete evidence to explain how the information was leaked. Once such evidence has been obtained, the non-breaching party may file a civil lawsuit against the breaching party.
Normally, the remedy available to the wronged party will be in the form of monetary damages awarded by the court, if his case is proven. In some cases, the court may issue an order barring the breaching party from further disclosing protected information. This is referred to as an “injunction.”
In 2003, Wall Street trader Lauren Brenner was inspired to start a physical fitness studio based on military boot camp-style programs. She visited Fort Knox on several occasions to learn and design materials she would use. After studying the program, she opened Pure Power Boot Camp in New York City. The studio used military colors and obstacles designed to fit an indoor space.
The studio employed a unique method of payment by clientele, in which no membership fee was charged, but clients were referred to as “recruits” who signed up for returning “tours of duty.” Brenner hired former marines as instructors to drill the recruits, two of which became her most trusted employees.
The studio was successful from the beginning, and Brenner planned to expand the operation. Her employees signed an employee agreement which contained non disclosure, non compete, and non solicitation provisions. After opening a second location in Manhattan, Brenner invited one of the two top marines to become a partner. He refused, claiming he did not have the money to invest.
In reality, the two instructors were planning to open their own boot camp gym with investments from their girlfriends. They leased a space 15 blocks from Brenner’s facility, and stole her Pure Power studio documents from her office, and destroyed their own employee agreements. The stolen documents included Pure Power Bootcamp business plan, its startup information, and its client list.
Before she learned about the stolen documents, Brenner got into an argument with one of the drill instructors and fired him. The other drill instructor promptly quit. The men used the stolen documents to open their own Warrior Fitness Boot Camp, going to far as to email Pure Power’s clients in an attempt to get them to switch to their gym.
When Brenner learned the men had stolen her confidential information to form their own business, she filed a lawsuit seeking an injunction against the competing business. While the court denied her request for an injunction, finding that the non-compete agreement was not enforceable. The judge did order the men to return the stolen materials, and to alter their dress code for their clients.
The case was then taken to federal court where the parties eventually had a bench trial. This court found that the two men had clearly breached the non disclosure agreement portions of their employee contracts, and ordered the men to forfeit about $96,000 in salaries. It also awarded the men to pay punitive damages in the amount of $150,000 for their “egregious” betrayals of the plaintiff’s trust.