The topic of non-disclosure agreements (NDAs) took center stage during one Democratic debate. In a signature moment for both candidates, Senator Elizabeth Warren attacked Michael Bloomberg for his company’s use of NDAs to reach settlements with former employees over claims of sexual discrimination and harassment. A salacious purpose to be sure, but it’s important to note that a few states have banned these “gag” NDAs. This unfortunate political spotlight has soured many opinions on NDAs in general, which threatens to become a damaging trend for businesses.
Business owners are no strangers to the power of information. After all, the most successful businesses use novel information to develop new products and services and retain a competitive edge. NDAs can be used to protect this proprietary information.
Protecting confidential information
Non-disclosure agreements are usually straightforward business contracts between two consenting parties that serve a single purpose: to safeguard information. The daily course of business requires companies to reveal trade secrets to employees, contractors and business partners, increasing the risk of an information breach. The use of NDAs ensures that these disparate parties do not improperly disclose any information they learned while employed and allows a business a legal recourse if such a breach occurs. Business owners should consider using NDAs if they wish to protect the following information:
- Intellectual property
- Novel inventions, business plans or patents
- Trade secrets
- Knowledge of consensual, if embarrassing, sexual affairs
- Knowledge of patients’ lab results
Two consenting parties
It is important to remember that all NDAs are legally binding documents that require a consensual agreement between two parties. While these tend to involve a sizable payout to an employee, no individual should have doubts about entering into a contract when signing, especially if they could incur a risk of a lawsuit. As such, business owners should consult a lawyer to assist in constructing their non-disclosure agreements to ensure transparency, clarity and security. Employees or contractors asked to sign an NDA should also consult with a lawyer before signing so they can fully comprehend the risks, penalties and expectations.