If you’ve ever watched the Good Wife, Suits, or literally any other legal drama, you have heard of the notorious “NDA.” You may not know what it means or why it’s important, but chances are you’ve heard this particular abbreviation in passing.
“NDA”, which stands for “Non-Disclosure Agreement”, is a legally binding contract between two or more parties that aims to protect confidential information. An NDA helps parties freely share sensitive information such as financial reports, client lists, intellectual property, and trade secrets. These types of agreement are typically signed before the parties begin their commercial interactions.
There are 2 types of NDAs that are commonly used:
- Unilateral NDAs – As only one party is disclosing confidential information to the other under this type of NDA, only one-party signs this Agreement. A unilateral NDA is common in employer-employee relationships, as well as seller-buyer agreements.
- Mutual NDAs – These NDAs are signed by both parties to the Agreement as confidential information is anticipated to flow both ways between the signatories. Mutual NDAs are common in joint ventures and corporate mergers and acquisitions.
While an NDA is a great deterrent for the misuse of confidential information, it has teeth as well. If a party breaches the NDA by disclosing or otherwise misusing confidential information, the innocent party can seek damages. The cost award for a breach of an NDA will vary depending on the severity of the breach and the extent of the harm caused.
If you’ll be selling your business, hiring an employee, retaining a contractor, engaging a distributor, or anything else that would result in your proprietary information being disclosed, you’ll sleep better at night with an NDA in place.
Robin K. Mann, Associate Lawyer