Is an NDA Legally Enforceable?

A non-disclosure agreement (NDA), or confidentiality agreement, is a contract in which one or both parties agree not to share specified information (Cornell LII). They are common in hiring, business deals, investor discussions and settlements.

What makes an NDA enforceable

• Clear definition of confidential information, with exclusions for public information, information already known, and information independently developed
• Reasonable scope: not so broad that it covers everything a person learns
• Reasonable duration, although trade secrets can be protected as long as they remain secret
• Consideration: something of value exchanged, such as employment or access to information
• Lawful purpose

Limits on NDAs

• Reporting to government: NDAs generally cannot stop people from reporting violations of law to government agencies. Federal trade secret law gives immunity for confidential disclosures to government officials or attorneys to report suspected violations, and employers must give notice of this immunity in agreements to obtain certain remedies (18 U.S.C. 1833(b)).
• Sexual harassment and assault: the federal Speak Out Act makes pre-dispute nondisclosure and non-disparagement clauses unenforceable with respect to sexual assault and sexual harassment disputes (42 U.S.C. 19403). Many states have their own limits.
• Labor rights: confidentiality rules that broadly restrict employees from discussing wages or working conditions can raise issues under labor law.
• Unconscionable or overly broad terms may be struck.

Remedies for breach

• Injunction to stop further disclosure
• Damages for actual losses
• Liquidated damages, if the amount is a reasonable estimate rather than a penalty
• Attorney fees, if the contract provides
• Trade secret claims under state law and the federal Defend Trade Secrets Act

Before signing an NDA

Check what counts as confidential, how long it lasts, whether it is mutual, what happens to materials when the relationship ends, which state's law applies, and whether it hides a non-compete; see non-competes.

If you are accused of breaching an NDA

Do not destroy documents. Read the agreement and any cease and desist letter carefully and get advice.

A business lawyer can draft or review NDAs.

Sources

1. Cornell Law School LII: Non-disclosure agreement
2. Cornell Law School LII: 18 U.S.C. 1833(b), Immunity for confidential disclosure of trade secrets to government or in court
3. Cornell Law School LII: 42 U.S.C. 19403, Speak Out Act