Understanding non-disclosure agreements for your employees

As an HR professional, you have to share private company information with your team while also keeping some guards in place to prevent this information from getting out. One way to do this is by using non-disclosure agreements (NDAs).

This article goes into the fundamentals of NDAs for companies that want to implement these agreements with their employees. It includes information on what NDAs entail and how to move forward if they’re breached.

What is an employee non-disclosure agreement?

A non-disclosure agreement (NDA) is a legal contract that establishes a confidential relationship between the parties who sign it.

When an employee signs an NDA, you can be more comfortable sharing sensitive information with them. Plus, the components of the NDA remain in effect even if the employee leaves the company, whether they get furloughed, resign, or depart in other ways.

The understanding behind an NDA is that the employee accesses all the information they need to perform their duties and be productive but with a lower potential risk of unauthorized disclosures.

What does an NDA cover?

An NDA contract exists to allow parties to share confidential information. Public disclosure of this information could cost the company its competitive advantage.

By this definition, NDAs cover the following:

• Intellectual property (IP): A lot of IP, like copyright, trademarks, and patents, is public information, but NDAs exist to protect them before that stage. Patents, especially, are the result of several years of research and development.

• Trade secrets: Trade secrets refer to anything that makes a business competitive. When trade secrets become public knowledge, it’s a real threat to the company. Famous examples include recipes for products like Coca-Cola and KFC’s 11 herbs and spices.

• Private business information: Private business information covers everything that drives your business plans and day-to-day operations, including customer lists, product plans, market research data, and employee records.

An NDA is useful for safeguarding sensitive information without having a negative effect on internal communication, but it’s not a blanket gag order.

Non-disclosure contract obligations don’t include the following:

• Illegal activities of any kind. In these circumstances, the NDA is not legally enforceable.

• Publicly available information, including anything that’s common knowledge or in the public domain.

• Anti-whistleblower measures and clauses. In addition to illegal activity, whistleblowers can reveal misconduct and threats to public safety.

• Information unsealed via court orders, regardless of the impact it would have on the company’s competitiveness.

What happens in the event of an NDA violation?

Sensitive company information is valuable. Even when you have an ironclad, definitive agreement, violations are always a threat.

If an employee were to violate an NDA, the legal ramifications would likely be civil rather than criminal. However, you shouldn’t take this to mean that there shouldn’t be any real consequences beyond dismissal.

Penalties for breaching an NDA can include an outright monetary fine or legal action. With the latter, an employee who loses could be made to pay financial damages and, depending on the ruling, the costs for your company’s legal counsel.

Examples of NDA violations

In 2019, a video game company Epic Games settled a lawsuit against a tester. The defendant was brought on to provide feedback on the then-upcoming “Fortnite Chapter 2” but leaked information about it. Under the settlement, they can’t attempt to access Epic Games’ trade secrets or encourage others to do so. The financial penalties they face for these actions include a $10,000 fine and fees for Epic’s legal team.

In 2020, a software developer was found in breach of contract by leaking confidential information even though the jury decided the info didn’t qualify as a protectable trade secret.

Business owners decides on the penalty for breaching an NDA when drafting the employment contract. The agreement template needs a clause for how to deal with the disclosing party.

How to write an NDA

For an NDA to be effective, you need to write it in a way that clearly lays out the terms of engagement and accounts for all relevant variables.

The common clauses and elements to include in an NDA are as follows:

• The identities of the parties: Capture the name of the employee and the name of the company at the start of the document so it’s clear who the agreement is between.

• The scope of the agreement: Define what the agreement covers as confidential information. The confidential information clause can specify business practices, product ideas, financial records, or whatever else you consider sensitive proprietary material.

• Any exemptions: Add an exemptions clause that defines when it’s appropriate to break confidentiality (e.g., when doing so is required by law).

• The duration of the agreement: Specify the amount of time that needs to pass before the employee can safely disclose information. Make sure the period is long enough for the information to no longer be sensitive to your company. For instance, five years is a good time frame if the info usually takes three years to go from ideation to patent.

• The parties’ legal obligations: Make it clear that the agreement binds the signee to confidentiality and, therefore, prohibits them from using confidential business information against your company.

• The consequences of breaching the agreement: Agreements without penalty when breached might as well not exist. Disciplinary actions could include a fine, loss of employment, or legal action, depending on how sensitive the information is.

• Termination clauses: Define what happens when the agreement or employment terminates, along with details on issuing notice, what to do with any confidential material still in the employee’s possession, exit interview information, and more.

• Governing law: To avoid any confusion on enforcement jurisdiction and how to interpret the agreement, include a clause specifying which laws prevail.

If all this seems like a headache to draft and enforce, you could offload the work of crafting sound confidentiality agreements to an expert like Remote. Create contracts and NDAs in seconds that protects your intellectual property rights.

FAQ for employees

Here are a few frequently asked employee questions on NDAs:

Can you be forced to sign an NDA?

No. You can’t be forced to sign an NDA no matter what secrets the business is trying to protect because then, it wouldn’t be enforceable. In many jurisdictions, a party entering into a contract against their free will can make the entire agreement invalid.

While you have the freedom to refuse to sign an NDA, doing so could mean being locked out of a job or contract where one of the non-negotiable terms is agreeing to an NDA.

Do NDAs apply to independent contractors?

If an independent contractor signs an NDA, it applies to them. An NDA is a contract that governs confidentiality rather than the nature of the person’s employment.

Independent contractor NDAs sometimes use language that’s specific to that specific employment relationship, but these documents are just as binding as employee NDAs.

Who should sign an NDA?

Any incoming employee who will be working with sensitive information, as determined by the employer, should fill out an NDA before starting. Depending on the company’s business model, this could mean all employees, only some people in specific departments, or just the higher-ups.

Are NDAs for government employees legal?

NDAs are legal for government employees, but they’re very rare. This is because what government officials do is considered of public interest, while NDAs are reserved for classified information. Even then, classified information doesn’t stay that way for an indefinite period.

In the US, for example, someone in a security agency like Homeland Security or the military might have to sign an NDA because they work with sensitive information. But because they’re of public interest, these NDAs are on the public record.

Let Remote help you invest in confidentiality with NDAs

An NDA allows you to share business secrets with your employees while making sure confidential information is safe from external parties.

A global HR platform like Remote helps you secure private information easily. Remote drafts employment agreements for you that include confidential obligations for employees. You can also sign an NDA directly with an employee for additional comfort. Plus, Remote HR Management stores all your important documents and data in one place, so you can manage your global team from a single platform.

Create a free account today to see how Remote can help you protect your company secrets and IP rights.