There are many reasons employers should consider the use of non-disclosure agreements (NDAs). Sometimes referred to as a confidentiality agreement, an NDA is a contract wherein the parties agree that certain facts are not to be discussed outside of certain circumstances.
Types of NDAs
There are three basic types of NDAs:
- Multilateral NDAs
- Bilateral NDAs
- Unilateral NDAs.
Multilateral NDAs involve three or more parties. When groups of three or more enter into a business relationship where each party is disclosing and receiving information that is confidential, sensitive, or could be financially beneficial to the others, a multilateral NDA prevents one of the parties from capitalizing on the information for their own gain.
Imagine a widget maker, a distributor, and a sales rep, each of whom has proprietary software to further their roles, wish to discuss going into business together. Obviously, to assess the beneficial nature of such a venture, they will need to disclose their methods and examine the methods of others.
An NDA prevents the widget-maker from taking the sales representative's private list of customers and using it to contact the customers directly. It also prevents the distributor from taking the proprietary widget manufacture methods and selling them to a competitor.
Similarly, when two parties are engaging in a relationship whereby they disclose confidential, sensitive, or financially beneficial information, the mutual NDA prevents disclosure for one party's personal benefit. Mutual NDAs work the same as multilateral NDAs when it comes to protecting the parties.
Unilateral NDAs protect employers from an employee or contractor from benefiting from disclosing confidential, sensitive, or financially beneficial information. Unilateral NDAs require, for example, that an employee not take the customer contact list, disclose the secret recipe for the company's “secret sauce,” both literally and figuratively.
Why One Size NDAs Do Not Fit All
It may be tempting to find a form on the internet and “plug and play” the information you think is relevant. Nothing could be more dangerous when using an NDA. If the NDA is too broad, it could be void for vagueness. If it lacks certain elements, it may be legally insufficient. A qualified business attorney can draft an NDA suitable for specific information.
When Do You Need a Confidentiality Agreement?
If an employer is uncertain whether an NDA is important in a given situation, they should consult a business law attorney. Some (but not all) situations where an NDA is a good idea include:
- When presenting sensitive business information to another to allow them to complete a service or task
- When providing sensitive information to an employee as needed to allow them to perform their job
- Where a prospective licensee, buyer, salesperson, or customer reviews a product not yet available to the general public
- When disclosing sensitive information to prospective investors or buyers.
Let Mohsen Parsa Work for You
Mohsen Parsa works as a business law attorney. He offers free consultations in the greater Los Angeles and Orange County Area. Call today to discuss your business law needs at (949) 394-6930.