Non-Disclosure Agreement (Confidentiality Agreement)

Definition

The term non-disclosure agreement is used to describe a contract between two parties that outlines how confidential materials or information may be shared with others.  While non-disclosure agreements oftentimes involve non-employees, companies will sometimes ask employees to sign these agreements when they are first hired.

Explanation

Also known as a confidentiality agreement (CA), a non-disclosure agreement (NDA) is a legal contract between two or more parties that outlines how proprietary information may be shared.  Confidentiality agreements usually involve employees and their employers, while non-disclosure agreements normally involve a corporation and non-employees.

The purpose of these agreements is to protect the company's proprietary, non-public information from disclosure to other parties.  NDAs are usually signed when one party has a need to share this information with another party for a specific purpose.  For example, one company may hire another to help them improve a process that involves trade secrets.

The non-disclosure agreement will typically address a number of items:

  • Parties:  includes those parties covered by the agreement, which can be representatives of a corporation, non-employees, as well as employees.
  • Identification:  including the confidential information that may be shared or generated during the agreement.  This may also include labeling of materials with terms such as proprietary, confidential, or restricted.
  • Disclosure Period:  the term over which disclosure is prohibited, typically used when certain confidential information will eventually be publically disclosed.
  • Exchange of Information:  includes how confidential information may be transmitted or reproduced.  For example, the NDA may prohibit emailing of documents unless the information is encrypted or password protected.
  • Exclusions:  identifies information that is not specifically covered by the agreement.
  • Protection of Information:  outlines how confidential materials may be stored.  For example, physical documents may need to be kept in locked cabinets and computer hard drives may need to be encrypted.

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