Nondisclosure agreements (NDAs) are important tools to protect sensitive information. Whether safeguarding trade secrets or confidential business strategies, a well-crafted NDA can prevent unauthorized disclosure and help to better ensure competitive advantage.
But how do business leaders make sure that their NDAs are well-crafted? The following tips can help.
Three tips for a “well-crafted” NDA
A well-crafted NDA is one that meets the business’ needs while also able to withstand legal challenge. Three tips to achieve this goal include the following:
- Clear definition of confidential information: Specify what constitutes confidential information. Too vague or overly broad definitions can render an NDA unenforceable.
- Duration of confidentiality: Define how long the confidentiality obligation will last. While indefinite terms can be problematic, a reasonable duration helps to better ensure enforceability.
- Signed and supported. Both parties need to sign the agreement and there must be something bargained for and received by the parties. Most commonly, this would mean the business receives protection of its secrets and the employee gets the job or promotion or a potential purchaser of the business obtains access to information needed to proceed with an offer. The legal world refers to this “support” as consideration.
By focusing on these elements, business owners can create NDAs that are more likely to withstand legal scrutiny.
Common examples of litigation
Common claims related to a broken NDA can include a breach of contract as well as intellectual property claims like misappropriation of trade secrets or copyright infringement. In these instances, an employer or seller could use a well-drafted NDA to help receive a court-ordered injunction against a former employee who leaves their business to join a competitor or potential purchaser who does not proceed with an offer from using the confidential information for themselves. This can reduce the risk of the former employee or potential purchaser using sensitive information for the betterment of a competitor.
Avoid errors in NDAs to further mitigate risk
The importance of the language used to draft the NDA cannot be overstated. It is imperative for business owners to review the language of the NDA and make sure the restrictions are necessary and proportionate to protect legitimate business interests. It is also important to make sure the agreement stays up to date. Business environments change, and so should NDAs. Regularly review and update agreements to reflect current business practices and legal standards.
An additional word of caution: New Jersey does not take allegations of discrimination or harassment lightly. As such, the state has decided that it will not enforce NDAs within settlement agreements related to claims of harassment or discrimination.
Business owners who take steps to avoid these common errors and implement the key strategies noted above can better ensure that their NDAs withstand a legal challenge and protect their business’ sensitive information. This can serve as a powerful tool in safeguarding a company’s competitive edge.