From restaurants to tech companies, many businesses have trade secrets or confidential information that they share with their employees. However, there is always a concern about keeping that information secure.
One way to make sure another person or entity respects the confidentiality of what makes your business unique is by signing a non-disclosure agreement (NDA).
Whether you are an employer or an employee, it is essential you understand what an NDA (also known as a confidentiality agreement) is, what your rights and responsibilities are under this legal document, and how you might be able to end the agreement.
What does an NDA do?
An NDA is a legal contract between two parties where one (or both) parties agree to keep some information confidential. Some typical situations where you may want to use an NDA are:
- Presenting a new business concept to a potential partner, investor, or distributor of your business
- Sharing financial or marketing information with a prospective buyer of your business
- Demonstrating a new product, service, or technology to a prospective buyer or licensee
- Receiving services from another company or individual who has access to your sensitive information while providing the services
- Giving employees access to proprietary business information during the course of their job
A few of the key elements of a well-drafted NDA include:
- Names of the parties signing the agreement
- A clear definition of what information is considered confidential under the agreement
- The reason why the sensitive information is being shared
- A detailed explanation of how the information can and cannot be used, including a non-compete clause
- The timeframe of the agreement
Finally, an NDA also should include the consequences of breaching the agreement.
How to Get Out of an NDA
One way to get out of an NDA is when the set term of the contract expires. Another way is if the contract is ended in accordance with its termination clause. In some cases, however, your legal obligations to maintain confidentiality can continue for many years.
Therefore, you need to read and understand an NDA’s terms before signing the document.
Read more:Is a Non-Disclosure Agreement Legally Binding?
Understand What are the Different Types of Non-Disclosure Agreements
In general, there are three different types of NDAs. Here is a brief description of them:
Unilateral NDA (sometimes called a one-sided NDA. In this type of NDA, only one of the two parties discloses confidential information. This party expects the other party to prevent any further disclosure.
Bilateral NDA. In this NDA, both parties disclose confidential information to each other with the intention of protecting and securing the information from further disclosure.
Multilateral NDA. This NDA involves three or more parties. One party discloses a piece of confidential information, and the other parties promise to protect that information from further disclosures.
Know the duration clause
A critical component of an NDA is the duration of the contract. Most NDAs specify a date when the contract expires. However, the obligation to keep the information confidential often extends past the date the contract ends.
This extension period can vary widely, according to contract law. For example, it could be one year after the end of the contract, five years, or even a lifelong obligation (called a perpetual NDA).
If the terms for confidentiality are not specified in the NDA, and a conflict arises between the two parties, it is left up to the parties involved to argue the legality of an extension.
Look for a termination clause
Sometimes employment and working arrangements end, and the parties who have signed an NDA may want to terminate the contract before the expiration date.
A termination clause in the NDA spells out how and when a party can end the contract early. However, some NDAs may not allow for an early termination, meaning that even if the parties agree to separate, the confidentiality obligation continues.
A termination clause should include the following:
- how one party should communicate an intention to terminate to the other party (such as in writing rather than in person or by phone)
- any required notice period before termination (such as 30 days’ notice)
- what happens after termination (such as the return or destruction of sensitive information)
Return or destruction of information clause
This clause states whether one party needs to return or destroy the confidential information after an NDA expires and when that action needs to happen.
This clause can specify that the other party must return all information, destroy all copies of the information they have, and show confirmation that they have done so. The clause also can include a pledge not to make any further copies of the information.
Indemnity clause
An indemnity clause is often a sticking point in NDA negotiations.
An indemnity clause states that one party (the “indemnifier”) agrees to pay the other party (the “indemnified”) an agreed amount of the confidentiality agreement is breached.
Before agreeing to an indemnity clause, it is important to ensure your contractual obligations are limited to your own misconduct or mistakes. If you have further questions about indemnity clauses or any other aspects of NDAs, you may want to discuss them with your lawyer.
In conclusion, one to end an NDA is when the contract term expires. Another way to get out of an NDA is to follow the terms of the termination clause. However, it is critical to read the wording of your contract before signing. In some cases, this confidential agreement could continue long after the contract ends.
If you would like to create legally binding NDA now, please visit lawdistrict.com.
Helpful Resources:
NDA - Forbes
Table of Contents:
Table of Contents:
From restaurants to tech companies, many businesses have trade secrets or confidential information that they share with their employees. However, there is always a concern about keeping that information secure.
One way to make sure another person or entity respects the confidentiality of what makes your business unique is by signing a non-disclosure agreement (NDA).
Whether you are an employer or an employee, it is essential you understand what an NDA (also known as a confidentiality agreement) is, what your rights and responsibilities are under this legal document, and how you might be able to end the agreement.
What does an NDA do?
An NDA is a legal contract between two parties where one (or both) parties agree to keep some information confidential. Some typical situations where you may want to use an NDA are:
- Presenting a new business concept to a potential partner, investor, or distributor of your business
- Sharing financial or marketing information with a prospective buyer of your business
- Demonstrating a new product, service, or technology to a prospective buyer or licensee
- Receiving services from another company or individual who has access to your sensitive information while providing the services
- Giving employees access to proprietary business information during the course of their job
A few of the key elements of a well-drafted NDA include:
- Names of the parties signing the agreement
- A clear definition of what information is considered confidential under the agreement
- The reason why the sensitive information is being shared
- A detailed explanation of how the information can and cannot be used, including a non-compete clause
- The timeframe of the agreement
Finally, an NDA also should include the consequences of breaching the agreement.
How to Get Out of an NDA
One way to get out of an NDA is when the set term of the contract expires. Another way is if the contract is ended in accordance with its termination clause. In some cases, however, your legal obligations to maintain confidentiality can continue for many years.
Therefore, you need to read and understand an NDA’s terms before signing the document.
Read more:Is a Non-Disclosure Agreement Legally Binding?
Understand What are the Different Types of Non-Disclosure Agreements
In general, there are three different types of NDAs. Here is a brief description of them:
Unilateral NDA (sometimes called a one-sided NDA. In this type of NDA, only one of the two parties discloses confidential information. This party expects the other party to prevent any further disclosure.
Bilateral NDA. In this NDA, both parties disclose confidential information to each other with the intention of protecting and securing the information from further disclosure.
Multilateral NDA. This NDA involves three or more parties. One party discloses a piece of confidential information, and the other parties promise to protect that information from further disclosures.
Know the duration clause
A critical component of an NDA is the duration of the contract. Most NDAs specify a date when the contract expires. However, the obligation to keep the information confidential often extends past the date the contract ends.
This extension period can vary widely, according to contract law. For example, it could be one year after the end of the contract, five years, or even a lifelong obligation (called a perpetual NDA).
If the terms for confidentiality are not specified in the NDA, and a conflict arises between the two parties, it is left up to the parties involved to argue the legality of an extension.
Look for a termination clause
Sometimes employment and working arrangements end, and the parties who have signed an NDA may want to terminate the contract before the expiration date.
A termination clause in the NDA spells out how and when a party can end the contract early. However, some NDAs may not allow for an early termination, meaning that even if the parties agree to separate, the confidentiality obligation continues.
A termination clause should include the following:
- how one party should communicate an intention to terminate to the other party (such as in writing rather than in person or by phone)
- any required notice period before termination (such as 30 days’ notice)
- what happens after termination (such as the return or destruction of sensitive information)
Return or destruction of information clause
This clause states whether one party needs to return or destroy the confidential information after an NDA expires and when that action needs to happen.
This clause can specify that the other party must return all information, destroy all copies of the information they have, and show confirmation that they have done so. The clause also can include a pledge not to make any further copies of the information.
Indemnity clause
An indemnity clause is often a sticking point in NDA negotiations.
An indemnity clause states that one party (the “indemnifier”) agrees to pay the other party (the “indemnified”) an agreed amount of the confidentiality agreement is breached.
Before agreeing to an indemnity clause, it is important to ensure your contractual obligations are limited to your own misconduct or mistakes. If you have further questions about indemnity clauses or any other aspects of NDAs, you may want to discuss them with your lawyer.
In conclusion, one to end an NDA is when the contract term expires. Another way to get out of an NDA is to follow the terms of the termination clause. However, it is critical to read the wording of your contract before signing. In some cases, this confidential agreement could continue long after the contract ends.
If you would like to create legally binding NDA now, please visit lawdistrict.com.
Helpful Resources:
NDA - Forbes
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