Non-Disclosure Agreement

A non-disclosure agreement is also called a nondisclosure agreement, NDA, trade-secrets agreement, confidentiality agreement, proprietary agreement or some combination of the above. It often is a clause within or accompanies another agreement, such as a non-compete, severance or separation agreement.

A non-disclosure agreement makes you promise not to disclose or profit from company confidential information, such as trade secrets and customer lists.

A trade secret is a formula, information, process or device that is not generally known outside of the business and gives the business a competitive edge. A customer list is generally considered to be a trade secret if the same information is not readily ascertainable from a source outside of the business, such as public records.

A non-disclosure agreement might also waive your employee rights to anything you invent, discover or improve even off the job, if it's related to the existing or planned scope of your employer's business.

An employer likely has the right to require you to sign a non-disclosure agreement (or clause), for you to land or keep a job. That's because employers have the right to protect their proprietary information and trade secrets by law.

But, the courts typically frown on employers requiring current employees to sign new agreements that waive their employee rights without some sort of compensation in return, other than just keeping their jobs.

So, if you're a current employee, then your employer might offer something extra to get you to sign a non-disclosure agreement, such as a benefit or perk. If you're resigning, your employer might offer severance pay to get you to sign.

If an employer is about to hire you, then the employer might offer only the job to get you to sign. But a court might agree that a new job alone is sufficient compensation for signing a non-disclosure agreement.

A non-disclosure agreement is typically enforceable, because, again, employers have the right to protect proprietary information and trade secrets by law. However, to be enforceable, a non-disclosure agreement typically must be reasonable in scope. Once signed, then it'll likely take a judge's or arbitrator's decision to determine if a particular non-disclosure agreement is reasonable in scope.

To find out about the general enforceability of a non-disclosure agreement in the state in which you work, start by contacting the state labor department. For enforceability specifics or legal advice about breaking your non-disclosure agreement, you'll likely need to consult an attorney.

It's not unheard of for employers to naively or intentionally attempt to protect that which they have no right to protect, such as common industry knowledge. If you have questions or doubts about signing a non-disclosure agreement, then it's a good idea to consult an attorney. To avoid enforceability problems, your employer likely will give you a reasonable amount of time to sign, so that you may consult an attorney.

Consulting an attorney will likely cost a fee, but it could save you a lot of heartache and much more in legal expenses down the road; for example, if you break your non-disclosure agreement, then the employer with whom you've agreed is likely entitled to file a potentially costly lawsuit against you.

See About Employment Contracts and Agreements for additional information.