An employee non-disclosure agreement (NDA), or employee Confidentiality agreement as it’s also known, is common in business today, especially in industries where there might be proprietary information or trade secrets. There are different types of confidentiality agreements for various business purposes. Here, we’ll discuss the employee non-disclosure agreement.

A company often asks employees with advanced knowledge of their confidential information to sign an NDA. Some companies make this agreement standard for all employees. This means the employee agrees not to use or make public information learned while working through the company.

This contract specifies the type of information which cannot be disclosed. This allows employees to understand better the information it would be detrimental to share. Trade secrets are protected, but employees might not realize that mailing lists and other client information are protected.

Before issuing an employment offer letter, many companies require their candidates to provide an employment verification letter with supporting proof of income documents.

Table of Contents

• What is an Employee Non-Disclosure Agreement?
• Employee Non-Disclosure Agreement vs. Non-Compete Agreement
• Parts of an Employee Non-Disclosure Agreement
• What Does an Employee NDA Protect?
• Consequences of Not Having an Employee Non-Disclosure Agreement
• How to Write an Employee NDA?
• Employee NDA FAQs
• Why should you use an Employee Non-Disclosure Agreement?
• When are non-disclosure agreements signed by employees enforceable?
• When are non-disclosure agreements signed by employees unenforceable?
• How long does a confidentiality agreement last?
• What information is not confidential?
• When Do I Need an Employee Non-Disclosure Agreement?
• Employee Non-Disclosure Agreement Sample

What is an Employee Non-Disclosure Agreement?

An Employee Non-Disclosure Agreement (NDA), also known as a Confidentiality Agreement or a Proprietary Information Agreement, is a legally binding contract between an employer and an employee. The primary purpose of an Employee NDA is to protect the company's confidential and proprietary information from unauthorized disclosure or use by the employee.

Key points covered in an Employee Non-Disclosure Agreement typically include:

1. Definition of Confidential Information: The agreement defines what constitutes confidential information owned or possessed by the company. This can include trade secrets, proprietary processes, business plans, customer lists, financial data, and any other sensitive information.

2. Obligations of the Employee: The NDA outlines the employee's obligations regarding confidential information. This often includes a commitment not to disclose, share, or use the information for personal gain or the benefit of competitors.

3. Duration of Confidentiality: The agreement specifies how long the employee must maintain confidentiality, which can be for the duration of their employment and often extends for a certain period after the employment relationship ends.

4. Exceptions: Some NDAs include exceptions, outlining circumstances in which the employee is permitted to disclose confidential information. Common exceptions include disclosures required by law, court orders, or government agencies.

5. Return of Materials: Upon termination of employment, the NDA may require the employee to return all company materials, documents, and electronic files containing confidential information.

6. Consequences of Breach: The agreement specifies the consequences of a breach, such as legal action, injunctive relief, or monetary damages that the employee may be liable for if they violate the terms of the NDA.

7. Non-Compete or Non-Solicitation Provisions (if applicable): Some NDAs include non-compete or non-solicitation clauses that restrict the employee from working for a competitor or soliciting the company's customers or employees for a certain period after employment ends.

8. Governing Law: The NDA often identifies the jurisdiction whose laws will govern the agreement and the resolution of any disputes.

Employee Non-Disclosure Agreements are commonly used in industries where protecting proprietary information is critical, such as technology, healthcare, finance, and manufacturing. These agreements help companies safeguard their intellectual property and maintain a competitive edge.

It's important to note that the enforceability of NDAs can vary by jurisdiction, and they must be carefully drafted to ensure they comply with local laws and regulations. Additionally, NDAs should strike a balance between protecting a company's interests and respecting an employee's rights and career opportunities. Employees should carefully review the terms of the agreement before signing it, and legal advice may be advisable in some cases.

Employee Non-Disclosure Agreement vs. Non-Compete Agreement

An Employee Non-Disclosure Agreement (NDA) and a Non-Compete Agreement (NCA) are both legal contracts used to protect a company's interests, but they serve different purposes and focus on distinct aspects of employee behavior. Here's a comparison of the two:

Employee Non-Disclosure Agreement (NDA):

1. Purpose: An NDA is primarily concerned with protecting a company's confidential and proprietary information. It restricts employees from disclosing or using the company's sensitive information for personal gain or the benefit of competitors.

2. Scope: NDAs focus on the confidentiality of information, including trade secrets, customer lists, business plans, financial data, and other proprietary information. They do not necessarily restrict an employee from working for a competitor or starting a similar business.

3. Duration: NDAs often have a defined duration during which employees must maintain confidentiality, typically for the duration of their employment and for a certain period after the employment relationship ends.

4. Consequences of Breach: Breaching an NDA typically results in legal consequences, such as a lawsuit seeking damages or injunctive relief to prevent further disclosure or use of confidential information.

Non-Compete Agreement (NCA):

1. Purpose: A Non-Compete Agreement is designed to prevent employees from engaging in competitive activities that may harm their former employer's business interests. It restricts employees from working for a competitor or starting a similar business in a specified geographic area for a defined period after leaving their current job.

2. Scope: NCAs focus on limiting an employee's ability to compete with their current employer within certain parameters, such as geographic location, industry, or time frame. They are less concerned with the disclosure of confidential information and more focused on preventing direct competition.

3. Duration: The duration of an NCA can vary but typically ranges from several months to a few years after the employee departs from the company.

4. Consequences of Breach: Breaching an NCA may result in legal action by the former employer seeking damages, injunctive relief to prevent competitive activities or other remedies as specified in the agreement.

In summary, the key distinction between an Employee Non-Disclosure Agreement (NDA) and a Non-Compete Agreement (NCA) is their primary focus. NDAs primarily address the protection of confidential information, while NCAs primarily restrict an employee's ability to compete with their former employer within certain parameters. Some agreements may include elements of both NDAs and NCAs, depending on the specific needs and concerns of the employer. Additionally, the enforceability of both types of agreements can vary by jurisdiction, so it's essential to ensure they comply with local laws and regulations.

Parts of an Employee Non-Disclosure Agreement

An Employee Non-Disclosure Agreement (NDA), also known as a Confidentiality Agreement, typically consists of several key parts or sections, each addressing specific aspects of the agreement. While the exact format and content can vary, here are the common parts found in an Employee NDA:

1. Title and Introduction:
   • Title: The document is often titled "Employee Non-Disclosure Agreement" or "Confidentiality Agreement."
   • Introduction: This section introduces the parties involved, typically the company (disclosing party) and the employee (receiving party).

2. Definition of Confidential Information:
   • This section defines what constitutes confidential information, which may include trade secrets, proprietary data, customer lists, business plans, financial information, and other sensitive information owned or possessed by the company.

3. Obligations of the Employee:
   • Confidentiality Obligation: The employee agrees not to disclose, share, or use the confidential information for any purpose other than their employment duties.
   • Duty of Care: The employee acknowledges a duty to exercise reasonable care to protect the confidentiality of the information.
   • Return of Materials: Specify that upon termination of employment, the employee must return all company materials and confidential information in their possession.

4. Duration of Confidentiality:
   • This section outlines how long the employee is required to maintain the confidentiality of the information. It often covers the duration of employment and may extend for a specified period after employment ends.

5. Exceptions to Confidentiality:
   • Specify circumstances where the employee is permitted to disclose confidential information, such as disclosures required by law, court orders, or government agencies.

6. Consequences of Breach:
   • Detail the consequences of a breach of the agreement, including potential legal action, monetary damages, and injunctive relief to prevent further disclosure or use.

7. Non-Compete or Non-Solicitation Provisions (if applicable):
   • If the agreement includes non-compete or non-solicitation clauses, outline the restrictions on the employee's ability to compete with the company or solicit its clients or employees after leaving.

8. Governing Law and Jurisdiction:
   • Identify the jurisdiction whose laws will govern the agreement and specify the venue for resolving disputes, typically through arbitration or in a specific court.

9. Severability Clause:
   • Include a clause stating that if any part of the agreement is found invalid or unenforceable, the rest of the agreement remains in effect.

10. Acknowledgment and Acceptance:
    • The employee acknowledges their understanding of the terms, their commitment to comply with the agreement, and their receipt of any necessary training or orientation related to confidentiality.

11. Signatures and Dates:
    • Both the employee and a representative of the company (e.g., an authorized officer) sign and date the agreement to indicate their acceptance and commitment.

12. Witness and Notary (if applicable):
    • Depending on legal requirements or company policies, the agreement may require witnesses or notarization of signatures.

13. Schedule or Attachments (if applicable):
    • Any additional schedules or attachments may be included to list specific items of confidential information, additional terms, or obligations related to the agreement.

14. Amendment or Modification Clause:
    • State that any changes to the agreement must be in writing and signed by both parties to be valid.

15. Review Period:
    • Specify whether the employee had an opportunity to review the agreement with legal counsel before signing.

It's essential to tailor the Employee Non-Disclosure Agreement to the specific needs and circumstances of the employer and employee while ensuring that it complies with applicable laws and regulations. Legal advice is often recommended to draft and review NDAs to protect the interests of both parties.

What Does an Employee NDA Protect?

An Employee Non-Disclosure Agreement (NDA), also known as a Confidentiality Agreement, serves to protect a company's sensitive and confidential information from unauthorized disclosure or use by employees. Here's what an Employee NDA typically protects:

1. Confidential Information: An NDA safeguards various forms of confidential information owned or possessed by the company. This can include:
   • Trade Secrets: Proprietary manufacturing processes, formulas, or techniques that give the company a competitive advantage.
   • Business Plans and Strategies: Long-term and short-term strategies, marketing plans, and growth projections.
   • Customer Lists: Lists of clients or customers, their contact information, and their specific needs or preferences.
   • Financial Information: Details about the company's financial performance, revenue, expenses, and profit margins.
   • Intellectual Property: Patents, copyrights, trademarks, and other forms of intellectual property owned by the company.
   • Product Development: Information about new products, prototypes, or innovations in the pipeline.
   • Supplier or Vendor Information: Supplier lists, pricing agreements, and contracts with vendors.
   • Employee Data: Employee salaries, contracts, and other sensitive HR information.

2. Competitive Advantage: NDAs protect the company's competitive edge by preventing employees from disclosing or using confidential information to benefit competitors or to start their businesses in direct competition with the company.

3. Customer Relationships: Confidential customer lists and information protect the company's relationships with clients and customers. This prevents employees from taking the company's clients with them if they leave the company.

4. Preventing Unauthorized Disclosure: NDAs ensure that employees do not disclose confidential information to unauthorized parties, including competitors, colleagues, friends, or family members.

5. Maintaining Trade Secrets: NDAs help safeguard trade secrets, which are often integral to a company's success, by preventing employees from sharing them with others.

6. Protecting Intellectual Property: Companies often rely on intellectual property, such as patents, copyrights, and trademarks, for their unique products or services. An NDA can help protect these assets.

7. Compliance with Legal and Ethical Standards: By ensuring that employees maintain confidentiality, an NDA helps the company comply with legal and ethical standards related to data protection and intellectual property.

8. Preserving Brand Reputation: Protecting confidential information helps maintain the company's reputation and prevents negative consequences that may result from data breaches or unauthorized disclosures.

9. Contractual Commitment: An NDA serves as a legally binding contract that outlines an employee's commitment to keeping company secrets confidential during and, in some cases, after their employment.

It's important to note that the scope and specific protections provided by an Employee NDA can vary. Some NDAs may include non-compete or non-solicitation clauses, which further restrict employees from competing with the company or soliciting its clients or employees for a specified period after leaving their employment. To ensure adequate protection, NDAs should be carefully drafted and reviewed to align with the company's needs and comply with applicable laws and regulations.

Consequences of Not Having an Employee Non-Disclosure Agreement

Not having an Employee Non-Disclosure Agreement (NDA) in place can have several potential consequences for a company, including:

1. Risk of Confidential Information Disclosure: Without an NDA, employees are not legally bound to keep the company's confidential information confidential. This increases the risk that employees may share or misuse sensitive information, which could harm the company's competitive advantage, reputation, and business operations.

2. Loss of Trade Secrets: Trade secrets, which are vital to a company's success, may be at risk of exposure. Trade secrets often include proprietary processes, formulas, or methods that provide a competitive edge. Failure to protect these secrets can lead to their loss and the loss of a competitive advantage.

3. Competitive Threat: Employees who leave the company may use the knowledge and information gained during their employment to compete with the company or start a competing business. Without an NDA, it can be more challenging to prevent such competitive activities.

4. Client and Customer Loss: Without protection for customer lists and relationships, departing employees may take clients or customers with them when they leave the company, leading to a potential loss of revenue and market share.

5. Legal Recourse Difficulties: In the absence of an NDA, proving that an employee disclosed or misused confidential information can be more challenging. Legal recourse may be limited, and pursuing a legal case against an employee for breach of confidentiality could be less straightforward.

6. Damage to Brand Reputation: A breach of confidentiality that results in the exposure of sensitive customer data or trade secrets can damage the company's brand reputation and erode customer trust.

7. Loss of Intellectual Property Protection: Intellectual property, such as patents, copyrights, and trademarks, may be at greater risk of infringement or misappropriation without adequate protection through NDAs.

8. Inadequate Legal Safeguards: NDAs provide legal safeguards that make it easier for a company to enforce its rights and seek remedies in case of a breach. Without an NDA, the company may have limited recourse in the event of a breach.

9. Reduced Attractiveness to Investors or Partners: Potential investors, partners, or collaborators may view the absence of NDAs as a sign of inadequate protection of sensitive information, potentially impacting the company's ability to secure deals or investments.

10. Missed Legal Requirements: In some industries or jurisdictions, the law may require companies to have NDAs or similar agreements in place to protect certain types of information or to comply with data privacy regulations. Failing to have these agreements in place can result in legal non-compliance.

To mitigate these risks, companies should consider implementing Employee Non-Disclosure Agreements as part of their standard employment documentation, especially in industries where the protection of confidential information is critical. Properly drafted NDAs can help safeguard a company's intellectual property, trade secrets, and sensitive data while also establishing a legal framework for addressing breaches of confidentiality.

How to Write an Employee NDA?

Writing an Employee Non-Disclosure Agreement (NDA) involves several steps to create a legally sound document that effectively protects your company's confidential information. Here are nine simple steps to guide you:

Step 1: Identify the Parties Involved

• Begin by identifying the parties involved: the company (disclosing party) and the employee (receiving party). Clearly state their full legal names and addresses.

Step 2: Define Confidential Information

• Precisely define what constitutes confidential information. Be specific about the types of information, such as trade secrets, customer lists, financial data, or proprietary processes.

Step 3: Describe the Purpose of the Agreement

• Explain the purpose of the NDA, which is to protect the company's confidential information from unauthorized disclosure or use by the employee.

Step 4: Establish Obligations of the Employee

• Outline the obligations of the employee regarding confidential information, including:
  • The duty is to maintain confidentiality.
  • The duty to use the information only for legitimate business purposes.
  • The prohibition against disclosing, sharing, or using the information for personal gain or the benefit of competitors.

Step 5: Specify Duration of Confidentiality

• Define how long the employee must maintain confidentiality. This typically covers the duration of their employment and may extend for a specified period after employment ends.

Step 6: Address Exceptions

• Specify any exceptions to the confidentiality obligations. Common exceptions include disclosures required by law, court orders, or government agencies.

Step 7: Consequences of Breach

• Clearly state the consequences of a breach of the agreement. This may include:
  • Legal action to recover damages.
  • Injunctive relief to prevent further disclosure or use.
  • Reimbursement of legal fees incurred by the company in enforcing the agreement.

Step 8: Include Standard Clauses

• Include standard legal clauses, such as:
  • Governing law and jurisdiction: Identify the jurisdiction whose laws will govern the agreement and the venue for resolving disputes.
  • Severability: Include a clause stating that if any part of the agreement is found invalid, the rest of the agreement remains in effect.
  • Entire agreement: Specify that the NDA constitutes the entire agreement between the parties and supersedes any prior understandings or agreements.
  • Amendment: State that any changes to the agreement must be in writing and signed by both parties to be valid.
  • Review and legal advice: Specify whether the employee had an opportunity to review the agreement with legal counsel before signing.

Step 9: Obtain Signatures

• Have both the employee and a representative of the company (e.g., an authorized officer) sign and date the agreement to indicate their acceptance and commitment. Depending on legal requirements or company policies, witnesses or notarization of signatures may be necessary.

After drafting the NDA, it's essential to ensure that it complies with applicable laws and regulations in your jurisdiction. Legal advice may be advisable to create a robust and enforceable NDA that protects your company's interests effectively.

Employee NDA FAQs

Why should you use an Employee Non-Disclosure Agreement?

Many times, there are legal consequences for employees disclosing trade secrets and other confidential information, even without an NDA. However, if your employee has signed an NDA, you have additional legal actions available that may be easier to pursue, like action for breach of contract for violating the non-disclosure agreement.

The NDA can also serve as a guide for the employee to outline expectations regarding what information should be protected and how to protect that information so that you can adequately manage employee expectations and hopefully avoid a serious breach or future legal action.

When are non-disclosure agreements signed by employees enforceable?

When non-disclosure agreements signed by employers are enforceable depends on your company’s state. State laws vary from state to state regarding employee NDAs, but most agreements may be enforceable if drafted and executed correctly. Also, for the non-disclosure to be legally valid, some form of consideration must be involved, like the employee being employed by the employer in exchange for the employee’s agreement under the NDA not to disclose confidential information or trade secrets of the business.

When are non-disclosure agreements signed by employees unenforceable?

This varies from state to state due to state laws, but employee NDAs can be unenforceable for several reasons, such as:

• The language is too broad – If the employee NDA is too broad or restrictive, the courts could deem it unenforceable, particularly if it’s not limited in duration or scope.

• The information is public knowledge – if the information a company is trying to protect is widely disclosed or public knowledge, then it’s unlikely the NDA will hold up in court.

• The NDA is protecting something illegal – If the agreement requires the employee to do something illegal, such as remaining silent about some illegal activity, the NDA won’t be enforceable.

How long does a confidentiality agreement last?

A confidentiality agreement lasts as long as the disclosing party requires the information to be confidential. Typically, they last between one and five years but can be as long as required.

What information is not confidential?

Information that is not confidential is typically anything that is known publicly. Information that the other party already has access to before signing the agreement, information that has been received by reverse engineering, and information required to be disclosed by a court of competent jurisdiction or government agency are further examples of information that is not confidential.

When Do I Need an Employee Non-Disclosure Agreement?

It’s ideal to have an employee NDA signed upon hiring a new employee. In many cases, it is contained within a standard employment contract.

These contracts are enforceable because they meet set criteria:

• Terms of Contract: The terms of the contract are laid out so that the employee can see what standards they agree to uphold.

• Agreement of Contract: The employee agrees to the terms of the contract.

• Payment or Considerations: Some value must be exchanged to bind a contract. When hiring a new employee, the position and salary serve as considerations.

Employee Non-Disclosure Agreement Sample