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Secrets worth keeping: Why Non-Disclosure Agreements are crucial

Picture a business landscape where confidential information is at risk of being leaked, leaving a company vulnerable to outside threats. Does not sound ideal if you run a business, does it? The unauthorized disclosure of confidential information, among others, may entail damaged business relationships and reputation, and even result in legal liability and loss of competitive advantage. This is where Non-Disclosure Agreements (NDAs) step in, serving as the unsung hero in the protection of a company's confidential information.

A non-disclosure agreement (NDA) is a legal contract between two parties in which one or both agree to keep certain information shared between them confidential. NDAs are commonly used in business to protect sensitive information such as trade secrets, business plans, and proprietary data from being disclosed to unauthorized third parties. By signing an NDA, both parties are legally bound to keep the information confidential, which can provide a significant competitive advantage. In fact, the corporate giant Apple has become known for being one of the most private companies in the world. The company keeps its technology and future products under tight wraps to prevent competitors from copying its innovations and trade secrets.  All of these by virtue of NDAs – also used as a marketing tool to generate excitement and anticipation for new product/feature releases.

While on the surface NDAs may appear like the perfect solution for any businesses, the reality is that their use and effectiveness are a matter of varying opinions. In particular, some believe that NDAs are often overused and can stifle creativity and collaboration, especially in cases where the term “confidentiality” is obscurely construed and broadly applied. In other words, if a company lists "any information obtained at work" as protected information, and the NDA is indefinite, a court will probably rule against this company in the event of a legal dispute. The critics also argue that asking employees to sign NDAs for special projects can lead to feelings of mistrust and dissatisfaction with the company.

A number of recent developments in the U.S. and Europe have prompted questions about NDAs, resulting in the proposal of new regulations that seek to limit their use in certain circumstances. For instance, in recent years, NDAs have come under scrutiny in the U.S. due to concerns about their use in settlement agreements in cases of sexual harassment and abuse. In this regard, President Biden signed the Speak Out Act, which makes an NDA unenforceable in contexts where claims relate to sexual assault or sexual harassment. The European Union has also been considering new regulations regarding the use of NDAs in employment contracts. The proposed regulations would limit the use of NDAs to protect confidential information that is truly sensitive and cannot be protected through other means. These regulations would also require companies to inform employees of their right to report potential legal violations, even if they have signed an NDA.

While such matters persist, it is important to consider all sides of the issue and make an informed decision on whether NDAs are right for your business. It is also important for employees to carefully read the NDA and ask questions, clarifications and corrections where needed.  Hence, if due consideration is given to their limitations and potential consequences, the latest developments in the field can help effectively navigate the complex world of NDAs.

So, it is safe to say that behind every successful business is a well-kept secret - one that's protected by NDAs. The importance of protecting confidential information in business cannot be overstated. By securing trade secrets and confidential data NDAs serve as a vital tool in maintaining a company's competitive advantage. While weighing the potential consequences of not having an NDA in place, let us ponder the crucial role these agreements have played in the success of countless businesses.

If you would like to learn how to draft a high-quality NDA for your business or clients, you can download our free, attorney-drafted NDA guide + template here.