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How Valid is a Non-Disclosure Agreement?

Posted by Jonathan Krems | Apr 06, 2023 | 0 Comments

In today's Freedom Friday blog and email newsletter, I want to talk about an issue that comes up occasionally with some of my clients, and that is non-disclosure agreements, better known as NDAs.  Either someone wants me to review their NDA before they sign it, or sometimes I have clients who want me to draft independent contractor agreements or employment agreements which contain non-disclosure provisions.  The question, though, is always how valid a non-disclosure agreement is, or whether or not an NDA can be enforced in Court.  That's what's we're talking about in today's Freedom Friday blog and email newsletter, “How valid is a non-disclosure agreement?”

Before I answer that question, let's talk about what a non-disclosure agreement (NDA) is to begin with.  A non-disclosure agreement (NDA) is a contract between two parties, one of whom is a disclosing party, and the other a receiving party, specifying information that is deemed confidential (or proprietary), and prohibiting the disclosure of that information to third parties.  Most NDAs are used in employer/employee relationships, or in the context of an independent contractor agreement.  The NDA is in force for the term of the contract, and usually for a period afterward.  Unfortunately, many individuals who sign an NDA see the NDA as a formality and think the employer or disclosing party won't enforce it.

Whether or not an NDA is valid or enforceable depends on whether the NDA is “reasonable” or not.  Some of the factors that courts look at to determine if an NDA is “reasonable” are the interests of the disclosing party in keeping the information confidential, the period of time the information must be kept confidential, the burden of compliance on the receiving party, and the interests of the public (in some situations).  Also, the information must be of a confidential or proprietary nature (e.g., trade secrets, processes, etc.), because if the information is determined to be not confidential or not proprietary, then the NDA could be not valid at all.

So, if you're an employer, or a disclosing party, how can you enforce what you think is a valid NDA?  First, you need to determine how far you're willing to go to enforce the NDA.  If you're not willing to enforce the NDA, it's not worth the effort asking your employees, independent contractors, or receiving parties to sign it.  Next, find out what information your NDA would cover.  The information can't be discoverable by the public, or in use by similar businesses to yours.  You also need to define your confidential or proprietary information, e.g., trade secrets, narrowly so that they are defensible.  Then you need to establish a time frame for the term of the NDA.  Some information ages faster than other information.  For example, a digital marketing campaign doesn't last as long as a secret recipe.  The NDA needs to cover a period of time after the relationship ends, such as termination of employment, or termination of the independent contractor relationship.  Your NDA should also provide that if there is a lawsuit, the losing party pays for legal fees.  Some people won't sign the NDA because of this clause, but maybe your business shouldn't be working with those individuals.  Lastly, keep an inventory of all your confidential or proprietary information, who accesses it, and when they access it.  Once the project requiring the information is completed, these individuals should no longer have access to that information, especially if it is stored digitally or electronically.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

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About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...


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