Non-Disclosure Agreements (also called NDAs, Confidentiality Agreements or Secrecy Agreements) have broad use in business.
The “form” NDA is a business myth. Each is designed for a purpose; the provision to protect a trade secret in a severance agreement bears little resemblance to one used when exploring a joint venture. An intellectual property attorney protecting your patent-pending machine in “pitches” to manufacturers uses a significantly different NDA than an employment law attorney protecting your client list from “walking away” with current employees.
All non-disclosure agreements should be:
- Realistic: Protecting information should not involve parties agreeing to lock themselves in windowless rooms while dealing with each other. If you are dealing with an unscrupulous person with no assets, an NDA may not protect you.
- Tailored enough. If collaborating, do you expect the other party to disclose information to contractors or employees?
- Broad enough. If you provide a plant tour, is information discovered in the plant tour protected?
- Specific enough. If one party drops out, may the other use information obtained? Is there a specific penalty for disclosure? Is there a penalty for accidental disclosure (e-mail intercepted by hacker, cleaning service theft, et cetera)? Does the NDA adhere to the laws of the state where it is written and to the laws of states where each party does business?
The Iowa Supreme Court sets out a test to determine whether a “nondisclosure-confidential agreement” is enforceable. The courts look at whether the restriction is: “(1) reasonably necessary for the protection of the employer’s business; (2) unreasonably restrictive of the employee’s rights; and (3) prejudicial to the public interest.”
Among ethical business partners, an NDA will set boundaries of conduct and mutual expectations. A well-worded agreement may save future headaches.
But even the best NDA will not make an unethical employee act ethically. In the event of unethical behavior, a properly drafted NDA may be a corporate lifesaver.