How to Draft a Fair, Effective, and Enforceable NDA

Non-disclosure agreements (NDAs) are one of the most important types of employment agreements for any business. Generally, they obligate those who sign them to refrain from disclosing certain information to third parties. While that sounds simple in theory, drafting an NDA that is fair, effective, and, perhaps most importantly, legally enforceable, is considerably more difficult. The restrictions in your NDA must be commensurate with the sensitivity of the information, and it must be tailored to the specifics of your business and industry. If you’re considering incorporating NDAs into your employment practices, a Richmond employment contract attorney can assist you.

Why NDAs Are Important

Most businesses derive at least some of their value from secret information, otherwise known as “trade secrets” in the legal profession. A trade secret is any information that derives economic value because it is not generally known to the public. Examples of trade secrets include recipes, source code, prototype products, customer lists, marketing plans, research and development data, and know-how. To be recognized and legally protectable as a trade secret, such information must be the subject of efforts to maintain its secrecy, such as by limiting physical or digital access to it. Another way to demonstrate efforts to maintain secrecy is to require employees with access to trade secrets to sign non-disclosure agreements (NDAs) that prohibit their disclosure to third parties. Even if your business doesn’t have trade secrets, NDAs can nonetheless be effective at preventing employees from disclosing information you’d rather keep private, such as company financials and personnel information.

When to Use an NDA

There are many situations in which you might want to use an NDA. Some of the most notable are:

You have valuable trade secrets
Your employees have access to sensitive customer data
You are entering into a joint venture with another company
You are seeking venture funding or other investment
You are hiring an outside consultant

For more situations in which it makes sense to use non-disclosure agreements (NDAs), please consult a Richmond employment contract attorney.

What to Cover in Your NDA

Below are a few tips for drafting a fair, effective, and enforceable NDA.

Definition of the Parties

A proper NDA should start off by defining the parties. For employer-employee NDAs, the parties typically are the disclosing party (the employer) and the receiving party (the employee). If both parties are receiving access to the other’s confidential information (such as occurs in a joint venture agreement), there are two disclosing parties and two receiving parties.

Definition of the Confidential Information

Vagueness can be fatal to any contract, including employment contracts. As such, a strong NDA should clearly and unambiguously identify the information that the receiving party is obligated to keep confidential. You don’t necessarily have to list the specific confidential information you want to keep secret, but you could consider using categories, such as technical information, financial information, drawings and designs, processes, source code, customer and personnel data, and sales and marketing plans. Also specify that such information is to be kept confidential, regardless of whether it is disclosed orally or in writing.

Scope of Confidential Information

While NDAs should not be vague, they should also not be unreasonably broad. They should be broad enough to cover the information you want kept secret, but not so broad that they sweep up arguably non-proprietary information and risk being found unenforceable. The following types of information are generally excluded from the scope of NDAs:

Information publicly available before the agreement was signed
Information that becomes public during the term of the agreement (but not through wrongful disclosure by the recipient)
Information that the receiving party already knew before the agreement
Information that the receiving party arrived at independently without using the disclosing party’s confidential information
Information properly received from a third party

Virginia law also prohibits employers from requiring employees to sign NDAs or other confidentiality agreements that would preclude them from disclosing the details of a sexual assault or sexual harassment claim.

As you can imagine, whether a particular disclosure was covered under an exception can be hotly debated; if you’re dealing with that issue, you should consider speaking to a Richmond employment contract attorney.

Duration of the NDA

The duration of the NDA should be long enough to protect your proprietary information but not so long that it places an unreasonable burden on the receiving party. Employer-employee NDAs typically cover the period the receiving party is employed, plus some time after termination or resignation. If the NDA covers trade secrets, the portion relating to the trade secrets could last as long as the information remains a trade secret (i.e., potentially in perpetuity).

Permissible Disclosures

Most NDAs include provisions that allow the receiving party to disclose otherwise covered information under certain circumstances. For example, disclosure might be permitted to comply with a court order or an internal or external investigation. If the NDA permits such disclosures, it may also include provisions requiring the receiving party to provide notice to the disclosing party prior to making the disclosure.

Remedies for Breach

There is a range of consequences for breaching an NDA, and a good NDA will include those potential consequences. Remedies for breach of an NDA include:

Injunctions: Court orders preventing or compelling certain action (e.g., continued disclosure of the confidential information)
Damages: Compensation for lost profits as a result of the breach
Legal fees and costs: The costs to the disclosing party for enforcing the NDA

In rare cases, breaching an NDA could even lead to criminal penalties — for example, if the breach of the NDA led to criminal theft or misappropriation of a trade secret.

Craft an NDA That Works for You With Help From a Richmond Employment Contract Attorney

NDAs are critical tools for protecting valuable business information, but they are not one-size-fits-all documents. They must be carefully drafted to ensure that they cover the correct information and account for a range of risk scenarios. For more information about incorporating NDAs into your employment contracts, please contact a Richmond employment contract attorney at Pierce / Jewett by calling 804-502-2320 or using our online contact form.