A non disclosure agreement (NDA), also commonly known as a confidentiality agreement, is used to safeguard a business’s proprietary information. This document is used by a business when it is sharing non public and/or proprietary information with another person or organization, like when you hire a new employee or start to work closely with a new vendor or client.
Once you understand the ins and outs of NDAs, also known as confidentiality agreements, you can make make a custom document with Rocket Lawyer, or consult with your own attorney. Please note that this article contains general information only, so you should consult your own legal professional before making any decisions on NDA contracts.
Free Non Disclosure Agreement Template
Below is an excellent free non disclosure agreement template that you can customize, with the advice of your attorney, for your small business. You can click here to download this as a PDF.
This Agreement (“Agreement”) is made as of Date (“Effective Date”) between Party 1 (the “Discloser”) and Party 2 (the “Reviewer”) (collectively, the “Parties”).
- Purpose. Discloser owns, possesses or controls certain proprietary and confidential information of a technical, business or personal nature (collectively and individually described as the “Information”). Reviewer agrees to receive, and Discloser is willing to supply, the Information on the terms and conditions set out in this Agreement for the purpose of Reviewer providing clerical support to Discloser. (“Purpose”).
- Disclosure. Discloser may provide the Information to Reviewer at its discretion as is required for the Purpose. Nothing in this Agreement obligates Discloser to make any particular disclosure of Information.
- Interest in Discloser. All right, title and interest in and to the Information shall remain the exclusive property of Discloser and the Information shall be held in trust and confidence by Reviewer for Discloser. No interest, license or any right respecting the Information, other than expressly set out herein, is granted to Reviewer under this Agreement by implication or otherwise. The Discloser, and not the Reviewer, is recognized as the legal “recipient,” contemplated as the party of interest or the legal addressee, of material that may be shared with Reviewer under this Agreement.
- Reviewer Duties / Standard of Care. Reviewer shall use all reasonable efforts to protect Discloser’s interest in the Information and keep it confidential, using a standard of care no less than the degree of care that Reviewer would be reasonably expected to employ for its own confidential information.
- Disclosure Restrictions. Reviewer shall not directly or indirectly disclose, allow access to, or transmit or transfer the Information to a third party without the Discloser’s prior written consent. Reviewer shall disclose the Information only to those persons who have a need to know the Information for the Purpose and who have been approved by the Discloser to receive the Information. Reviewer shall, prior to disclosing the Information to such employees and consultants, issue appropriate instructions to them to satisfy its obligations herein and obtain their written agreement to receive and use the Information on a confidential basis on the same conditions as contained in this Agreement.
- Parties with Express Permission to Access. For purposes of this Agreement, Discloser expressly grants Parties right to access the Information considered under this Agreement for the stated purposes.
- Storage Restrictions. The Information shall not be copied, reproduced in any form or stored in a retrieval system or database by Reviewer without the prior written consent of Discloser, except for such copies and storage as may reasonably required internally by Reviewer for the Purpose.
- Instances of Reduced Obligation. The obligations of the Reviewer under this Agreement shall not apply to Information:
(a) Which at the time of disclosure is readily available to the trade or the public;
(b) Which Reviewer can establish, by documented and competent evidence, was in its possession prior to the date of disclosure of such Information by Discloser;
(c) Or any Information which the Reviewer is legally required to disclose.
- No Representation. This Agreement shall not constitute any representation, warranty or guarantee to Reviewer by Discloser with respect to the Information infringing any rights of third parties. Discloser shall not be held liable for any errors or omissions in the Information or the use or the results of the use of the Information.
- Damages Acknowledged: The Parties acknowledge and agree that due to the unique nature of the Works and Proprietary Information, any breach of this agreement would cause irreparable harm to a the affected Party. Any breach would result in harm for which damages would not be an adequate remedy and that each affected Party shall be entitled to equitable relief in addition to all other remedies available at law.
- Return and Deletion of Information upon Request. Reviewer shall, upon request of Discloser, immediately return the Information and all copies thereof in any form whatsoever under the power or control of Reviewer to Discloser, and delete the Information from all retrieval systems and databases or destroy same as directed by Discloser and furnish to Discloser a certificate by an officer of Reviewer of such deletion or destruction. To the extent that Reviewer has shared information under this Agreement, Reviewer must provide information to the identity of the persons with whom the information was shared. This provision requiring identity of persons with whom Information is shared applies only to persons with whom information was shared outside of a recognized attorney/client, attorney work product or other recognized privilege.
- Severability. If any provision of this Agreement is held to be invalid or unenforceable in whole or in part, such invalidity or unenforceability shall attach only to such provision or part thereof and remaining part of such provision and all other provisions hereof shall continue in full force and effect.
- Indemnification. The Reviewer shall indemnify and hold harmless the Discloser from all damages, losses, expenses and costs whatsoever resulting from the breach of this Agreement by the Reviewer.
- Merger Clause / Entire Agreement. This Agreement represents the final agreement between the Parties relating to the subject matter hereof, and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the Parties. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the Parties other than as expressly set forth in this Agreement.
- Modification. This Agreement may only be modified in writing, signed and acknowledged by each of the Parties.
- Assignment / Delegation. This Agreement may not be assigned or delegated by either party without the prior written consent of the other party.
- Governing Law / Enforcement. This Agreement shall be construed in accordance with the laws of the District of Columbia. Any proceeding to enforce this Agreement shall be brought in the courts of the District of Columbia.
- Good Faith. The Parties agree to operate in good faith to resolve any disputes that may arise under this Agreement.
- Successors in Interest. This Agreement is binding upon the Parties, their heirs, executors, administrators, assigns, successors in interest, predecessors in interest, and anyone claiming by or through any of the Parties.
- Execution in Multiple Parts. This Agreement may be executed in multiple identical counterparts, each of which when executed shall be deemed an original.
- Capacity to Contract. The signatories hereto covenant, represent and warrant that they are of legal age, are under no disability and have the mental capacity and authority to legally bind themselves and/or the persons on behalf of whom they execute this Agreement.
- Notice of Terms. The Parties acknowledge, represent, warrant and confirm that they have each carefully read and understand the effect of this Agreement, and that they each have had the opportunity to enlist the assistance of legal counsel in carefully reviewing, discussing and considering all terms of this Agreement.
- Construction. In the event of any question or dispute under this Agreement, the Parties agree that the terms of this Agreement shall be construed as if all Parties were the drafter hereof.
Signature, Party 1: __________________________ Date: ______________________
Printed Name, Party 1: _______________________
Signature, Party 2: __________________________ Date: ______________________
Printed Name, Party 2: _______________________
What a Non Disclosure Agreement Should Specify
Here we list out the top 4 things an NDA, also known as a confidentiality agreement, should always include:
- The Effective Date: A non disclosure agreement must specify the date on which it goes into effect. This is generally the date on which the agreement is signed but it can be a different date.
- The Period of Effective Time: The agreement must also specify the time period for which the agreement will remain effective. This can range from a day to an indefinite period after your employment is over (including forever!), and also will vary depending on what you are trying to protect. This is an area where asking your attorney might be best, especially if using a template or other online resource.
- The Protected Information: The agreement must specify the information that is sought to be protected and the owner of the information. This information is referred to a confidential information in the agreement. The description of the confidential information must be very specific and detailed. General phrases are best avoided as they are hard to define and even harder to prove in a court of law.
- The Consequences of Breaking the Agreement: The agreement must have a clause that permits the business to get an injunction order from a court of law if it fears that the recipient party is likely to disclose the information. Once the agreement is signed and the party receiving the information breaches the agreement, the party can be sued for damages.
In order to make sure your NDA is composed properly for your business and what you need, we highly recommend that you consult your attorney or speak with an expert at Rocket Lawyer for help.
Why You Might Need A Non Disclosure Agreement
An NDA ensures that a person or organization who has access to your company’s business does not disclose proprietary information to any third party without your consent. Non disclosure agreements can also specify the terms under which the business shares this information, such as what will happen in legal proceedings, who will pay for all the expenses, and penalties for violating the agreement.
Proprietary information is the broad term used to encompass various types of information that have some value to the owner. This value could be diminished or destroyed if the information is disclosed to others or disclosed without appropriate restrictions. The basic criteria for proprietary information are:
- The information is not generally known
- The information gives an advantage to the business who owns the information over others
- Reasonable efforts are made to protect its secrecy
Proprietary information can be information, records, software, and other work products that are developed on behalf of a company or by using the company’s facilities. It is information that was difficult or costly to develop, or that has an intrinsic value.
Non Disclosure Agreement Situation Examples
Let’s look at a few examples:
An HR manager quits their firm and moved to become an HR Director at a competitor. At her last role, she was using Gusto HR software for payroll and benefits, and decides to implement Gusto at her new company.
NDA worthy? No! This is NOT covered by an NDA— this is simply the HR Manager’s preference for a vendor and she would not be taking any information about company products with her.
An HR manager quits their firm and moved to become an HR director at a competitor. At her last role, she was a part of the Board of Director meetings and was privy to learning about their new products in beta-testing and how they were going to bring them to market. She tells her new firm about two of the products in beta-testing that are not public and the former company’s go-to-market workflow strategy.
NDA worthy? Yes! The HR manager is telling her new company about their direct competitor’s secret sauce, and exposing products that are not public yet.
With NDAs, it’s also useful to look at examples on why a company might use one, such as:
Common Company Situations & NDAs
Do They Need an NDA?
Small social media marketing firm
Since most businesses in this industry have unique approaches, employees and clients should have an NDA to protect their “secret sauce” from being stolen.
Startup who just got funding
This is absolutely essential to protect yourselves as a startup. You also may want to look into an Invention Patent.
An NDA doesn’t make sense for an HVAC company since they are in a trade where, once someone is trained in it, the processes to fix or repair HVAC systems is common trade knowledge. Nonetheless, a non compete agreement might make sense in order to protect the company’s client list.
3 Questions to Ask Yourself to Discover If You Need an NDA
If you still aren’t sure if your business needs an non-disclosure agreement or confidentiality agreement, ask yourself the following yes or no questions:
- Question 1: Would an employee telling our competitor about our inner business workings hurt our business in a non-repairable way?
- Question 2: Would our vendor or client telling another company in our industry our arrangement with them hurt our business in a non-repairable way?
- Question 3: Would I want the grounds to fire an employee if I found out s/he was telling others outside the company about our “secret sauce”?
If you answered “yes” to 2 or all 3 of these questions, then you need an NDA to protect your business.
What Cannot be Protected by a Non Disclosure Agreement
Not all kinds of information can be included in a non disclosure agreement. Things that are exempt from these agreements include but are not limited to:
- Anything that is a matter of public record is not proprietary information and cannot be included in a non disclosure agreement.
- Any information that the receiving party has prior knowledge of or gained from different sources cannot be included in a non disclosure agreement.
- Any information that can be subject to a subpoena may or may not be included.
- Any information that is common knowledge in a field, like our example of an HVAC company. For example, how one repairs a clogged drain line (a common HVAC problem) is the same regardless of the company they work for, and then is not protected by an NDA.
An NDA is not meant to protect a company from doing something illegal either; if your company has unethical or illegitimate business practices, your clients, employees, and vendors still have the right to whistleblow to the proper authorities.
Why You Also Need An Employee Handbook
For an employee confidentiality agreement to be most effective, the employee handbook should delineate company policy on proprietary information. Our article linked above has a free employee handbook sample to use.
The business must then define in the handbook what constitutes a secret if the confidentiality agreement is to work. This is because the employee handbook explains in plainer language what is and expected to be protected by the agreement, serving as training on the agreement. It is also much easier to update the handbook quickly as your business expands (whereas the contract should be written in a way that rarely should need editing).
The employee handbook section elaborating on the NDA or confidentiality agreement should include the following elements:
- Labeling proprietary information as “secret and confidential”, like labeling hard drives or files as such.
- Limiting access to the information to employees on a “need to know” basis by having passcode-required hard drives or files.
- Periodically searching employee lockers, desks, and computer files for unauthorized storage of information.
- Placing notices about the company’s policy at all photocopying machines, computers, and facsimile machines.
- Requiring outside consultants and temporary employees to sign confidentiality agreements.
Including an acknowledgement in termination notices that reminds employees of their continued obligation to not misuse corporate trade secrets.
Unilateral vs Mutual NDA’s
There are two types of NDAs; unilateral and mutual.
Type 1: The Unilateral NDA
The unilateral NDA is the more common one. In a unilateral NDA, the business discloses the information to another party and the party that receives the information agrees not to disclose the information. This is commonly used with employees or investors of a company.
Type 2: The Mutual NDA
In a mutual NDA, the parties agree not to share the other’s information. This type of non disclosure agreement is generally used when two businesses share proprietary information, such as those who are doing business together to launch a product. This is more useful for vendors or clients and other strategic business partners of a business.
The Bottom Line
If your gut tells you that having a non disclosure agreement is important for your business, consult with your attorney or ask the professionals at Rocket Lawyer about it. Once you get the NDA sorted out, you will sleep better at night knowing your business is safe.
Not sure where to store all of these signed NDAs? We highly recommend Gusto as our go-to payroll provider and they also have capacity to store signed NDAs in employee files. You can add yours into the employee onboarding process to make sure it’s always done.