Nondisclosure Agreement

How do employers use a nondisclosure agreement?

Businessman showing client where to sign document
•••  Westend61/Getty Images

A nondisclosure agreement is a written legal contract and is usually between an employer and employee. The contract lays out binding terms and conditions that prohibit the employee from disclosing confidential and proprietary company information. For the agreement to be legally binding, the employee must receive something in return for signing it–employment in this case.

Nondisclosure agreements are also known as nondisclosure, NDA, confidential disclosure agreements, secrecy agreements, proprietary information agreements and confidentiality agreements.

 

An NDA is in effect for the duration of an employee's employment and for a period of time following employment termination. In order to be enforceable, a nondisclosure agreement must be protecting information that is both confidential and valuable.

Other Instances When Nondisclosure Agreements Are Used

In other circumstances where an employer is interested in keeping confidential and proprietary company information private, a nondisclosure agreement may be instituted. Using an NDA under some of these circumstances requires a leap of faith by the employer who may not know all the individuals who are involved in the conversation.

However, by using a binding legal document, the employer would have some recourse if confidential or proprietary company information was shared. The occasions for which an employer will want to use a nondisclosure agreement include:

  • Management and senior level job interviews during which confidential company information is discussed with the candidate as it is nearly impossible to hire a senior staff person without discussing highly confidential information. Without the discussion, the employer and candidate would not be able to identify whether the candidate fits the job.
  • Consultant or contractor contract and assignment discussions and any products that result from the contractual work performed for the company.
  • Vendor discussions that involve products, parts, and other proprietary information sharing to determine whether the vendor has the capability and capacity to produce the necessary product.
  • Situations involving stock or company purchase, due diligence, or any interaction during which confidential information is shared. During due diligence, any person who must review confidential company information is required to sign a nondisclosure agreement. This includes accountants, company owners, product review senior employees, and so forth.

Employer Benefits From Using Nondisclosure Agreements

Employers benefit from nondisclosure agreements because they keep these parties from sharing with competitors any proprietary knowledge, trade secrets, client or product information, strategic plans, or other information that is confidential and proprietary to the company.

Nondisclosure agreements state that the signer cannot disclose or in any way profit from confidential company information supplied to them.

Nondisclosure agreements frequently claim company ownership of anything that is developed, written, produced, or invented during or as a result of employment, contracts, services, or interviewing if it is in any way related to the scope of the company's business.

A nondisclosure agreement should offer a clause that allows an employer to sign off on or give permission to the signer to use company proprietary information.

This allows employees some latitude to participate in activities such as starting a business or becoming a supplier to their former employer.