What is a Non-Disclosure Agreement (NDA)?
A Non-Disclosure Agreement (NDA) is a binding contract that requires all parties to the agreement to keep specified information confidential. Non-Disclosure Agreements are standard in business and professional settings.
When a recipient of confidential information signs an NDA, it creates a written record of an agreement not to reveal the specified information to any unauthorized people or organizations. If a recipient fails to keep the information private or uses it for purposes other than the permitted purpose specified in the agreement, the disclosing party may have grounds to take legal action against them.
A Non-Disclosure Agreement is also called a/an:
- NDA contract
- Confidentiality agreement
- Confidential disclosure agreement
Although Non-Disclosure Agreements can be used in various situations, our template is designed to cover common employment and business situations where confidential information needs to be shared and protected.
When do you need a Non-Disclosure Agreement?
You generally need an NDA whenever you plan to share confidential or proprietary information with someone outside your organization and want a legally binding assurance that they’ll keep it private and won’t use it other than for the purpose intended.
As a general rule of thumb, you should use an NDA whenever:
- Information isn’t publicly accessible and you plan to share it
- At least one party gains commercial or strategic value from keeping information private
- Disclosure or misuse of shared details could damage competitive advantages, reputation, or legal rights
If you’re unsure, review your situation—whether it involves an employee, investor, contractor, or business partner—and consider whether a unilateral or mutual NDA fits best, as well as which key terms should be included.
Non-Disclosure Agreement vs. other contracts
Choosing the right agreement depends on what you’re protecting—confidential information, competitive advantage, or business relationships.
NDA vs. Confidentiality Agreement
Generally, both an NDA and a Confidentiality Agreement serve the same purpose, ensuring that the receiving party doesn’t disclose or misuse private details.
LawDepot’s Non-Disclosure Agreement template allows you to easily create a document that safeguards your confidential information while using the more commonly recognized “NDA” title.
NDA and Non-Compete or Non-Solicitation Clauses
Rather than using separate agreements, you can include non‑compete or non‑solicitation clauses within an NDA.
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A non-compete clause is used when you need to limit a former employee or contractor from entering direct competition for a set period and in a specific region.
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A non-solicitation clause prevents departing employees or contractors from contacting, recruiting, or doing business with your clients or staff after they leave your company.
Incorporating these clauses into your NDA can strengthen confidentiality protections by restricting competition or outreach to clients and employees for a defined period.
Like with separate Non-Compete Agreements, these kinds of clauses will only be enforceable when limited to reasonable time frames and contacts.
Types of NDAs
Non-Disclosure Agreements can either be unilateral or mutual.
Under a unilateral NDA, only one party agrees not to disclose confidential information. Therefore, only the recipient is bound to confidentiality. Unilateral NDAs, also known as non-mutual or one-way NDAs, are agreements that are not reciprocal in nature. Our template only creates unilateral agreements.
Under a mutual NDA, also known as a bilateral NDA, both parties disclose and receive confidential information and protect their interests in one document. For example, a business may be required to provide a contractor with customers' personal information. In return, the contractor may disclose a trade secret about how they handle the data. If both parties want to protect their information, they can sign a mutual NDA.
If you need a mutual agreement, you can use our template to create two documents with the parties switching roles.
Common Non-Disclosure Agreement use cases
An NDA can be used in a variety of situations, such as the following scenarios:
1. Promoting an employee
If you're hiring an employee who will have access to confidential information on the job, have them sign an NDA before hiring. This is especially important if some sensitive details will be discussed before the candidate becomes an employee. Confidential information may include your business's marketing strategies, customer data, future plans, and other sensitive details.
A Non-Disclosure Agreement can protect you and your business interests by deterring your employees from sharing or misusing confidential information. If the employee breaches the agreement, you have the right to take legal action against them.
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Alternatively, if you don't need to discuss any trade secrets before hiring, you can include confidentiality clauses in an Employment Contract.
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2. Hiring a contractor or consultant
If the main contract (whether it’s a Service Agreement, Independent Contractor Agreement or Consulting Agreement) does not include confidentiality clauses for some reason, or if responsibilities changed after the initial signing, a separate NDA should be used for sensitive business information.
Like employees, contractors and consultants may need access to your business plans, marketing strategies, customer data, or other information to perform their roles effectively. With NDAs, you can provide them with the information required to succeed while protecting your interests.
3. Selling a business
If you're selling all or part of your business through the sale of shares or assets, a prospective buyer will need to carry out due diligence by inspecting your financial books and other confidential records to arrive at an accurate valuation of the business. Before you disclose anything, present them with an NDA and ask them to sign. This way, your business interests are protected if the sale does not proceed with this buyer.
When selling a business, confidential information can include knowledge or documentation relating to employees, trade secrets, clients, profits, or losses.
4. Discussing an invention or idea
If you plan to discuss an invention or piece of intellectual property with someone, have them sign an NDA before disclosing any information.
To evaluate an invention, investors or potential buyers often require access to confidential information about it before deciding whether to become involved. An invention could be a:
- Product
- Plan
- Design
- Recipe
A Non-Disclosure Agreement allows investors, buyers, and other collaborators to make informed decisions without having the right to share or misuse your intellectual property.
Generally, you shouldn't describe an invention in an NDA to ensure that the evaluator can't read the agreement, gain knowledge about your invention, and refuse to sign. By excluding a description, the evaluator must sign the NDA before disclosing any information about the invention. Simply describing your invention could allow someone else to steal your idea.
Other situations to use an NDA
- Partnership and joint venture discussions: Protect proprietary information shared while exploring potential collaborations.
- Seeking and requesting funding from investors: Safeguard financial details, business plans, and forecasts disclosed to potential investors or lenders.
- Vendors, agencies, and service providers: For use when working with marketing agencies, software developers, consultants, or other third‑party vendors who may access sensitive business details.
Information protected by a Non-Disclosure Agreement
In a Non-Disclosure Agreement, you can choose to protect the following types of information:
- Customer information, including customer names, contact details, and purchase histories. A customer's purchase history may include descriptions of products and services they've purchased, leased, licensed, or received from your business.
- Intellectual property, such as information related to creating and selling a product or service, such as copyrights, patents, and trade secrets (including computer technology).
- Marketing, product, and service information, such as production processes, research, pricing and billing policies, and marketing and advertising techniques.
- Business operations and accounting information, including names and contact information for employees and employers, purchasing and internal cost details, and information related to payroll and other financial reports (information that should already be protected under an Employee Privacy Policy).
In the United States, a Non-Disclosure Agreement can protect both trade secrets and other confidential business information. Trade secrets are also covered under federal law through the Defend Trade Secrets Act (DTSA), which allows businesses to file civil claims for misuse of protected information and requires certain NDAs to include whistleblower‑immunity language.
What is not covered by a Non-Disclosure Agreement?
Confidential information can't be common knowledge or already in the public domain. As a result, confidential information can't include the following:
- Information that is well-known or public knowledge
- Information that becomes publicly known through no fault of the recipient
- Information that the recipient already knows before they receive it from the disclosing party
- Information created by the recipient through independent research without the use of the disclosing party's confidential information
- Information rightfully obtained from a third party regarding the disclosing party's business
Key Non-Disclosure Agreement requirements
Before you begin drafting your NDA, ensure it contains the following components and parameters:
- Parties and their roles: Every NDA identifies who’s sharing confidential information (the disclosing party) and who’s receiving it (the receiving party).
- Termination clause: Most NDAs include a clause that allows either party to terminate the agreement with written notice. However, ending the NDA doesn’t cancel ongoing confidentiality obligations that continue after termination.
- Use of release clauses: These clauses may appear when a party limits liability or waives claims related to accidental or legally required disclosures.
- Definition of confidential information: The NDA defines what qualifies as “Confidential Information,” including business strategies, financial data, trade secrets, technical materials, and client lists, whether written, oral, or digital.
- Exclusions from confidentiality: Common exclusions include public information, already known to the recipient, lawfully received from another source, or independently developed without using the discloser’s information.
- Permitted uses: The recipient can use confidential information only for a defined purpose, such as evaluating a business relationship or completing a project.
- Recipient’s obligations: The Receiving Party must protect the information, share it only with approved representatives bound by confidentiality, and follow security measures to prevent unauthorized access.
- Handling and return of information: NDAs often require recipients to safeguard data, restrict internal access to essential personnel, and return or destroy materials on request.
- Legally compelled disclosure: If disclosure is required by law or court order, the recipient must notify the Disclosing Party before sharing any information.
- Remedies clause: The NDA should acknowledge that a breach of confidentiality may cause harm that money alone can’t remedy. It should state that injunctive relief—such as a court order to stop further disclosure—will be appropriate in the event of a breach.
- Term and duration: The agreement outlines the duration of the NDA's effectiveness and the period during which confidentiality obligations remain in effect after it expires.
- Survival of obligations: Confidentiality may last for a set time (commonly 3–5 years) or indefinitely for trade secrets, continuing until the information becomes public through lawful means.
How to define confidential information in an NDA
Defining confidential information in an NDA starts with clearly stating the purpose for which the information is shared with the receiving party. Any use of that information beyond the stated purpose is considered a misuse.
Setting these boundaries can help determine when a breach of confidentiality in an NDA has occurred more easily.
How to write a Non-Disclosure Agreement
Here’s a clear, step‑by‑step outline for writing an NDA with LawDepot’s user-friendly template:
1. Identify the purpose of the NDA
State why you’re creating the NDA—examples include employment, contractor or consultant work, the sale of a business, partnership discussions, or sharing an invention. Defining the situation helps specify how confidential information can be used.
2. Specify the parties and the location
- Select the state jurisdiction where the NDA will apply. This determines which laws govern the agreement and ensures that the legal language complies with local requirements.
- List the full legal names and addresses of everyone involved, noting which party is the client and which is the contractor.
- Decide whether the NDA covers all confidential material or specific information, such as business operations, intellectual property, products and processes, etc.
3. Set the duration
Choose how long the duties of confidentiality must be maintained; either indefinitely, within five years, or by a specific date.
4. Add optional clauses and finalize the agreement
Include any optional provisions, such as:
- Non‑solicitation clauses to prevent poaching of employees or clients
- Non-compete clauses to stop parties from bypassing each other in business opportunities
- Clauses tailored to your situation (e.g., dispute resolution or notice requirements)
Set the signing date, decide whether to use witnesses, and prepare signature blocks for all parties. Each party should review the final version before signing to confirm mutual understanding and acceptance.
What happens if you break a Non-Disclosure Agreement?
Violating an NDA can result in serious legal, financial, professional, and reputational consequences depending on its use case. While it’s typically handled as a civil matter, it can sometimes lead to criminal penalties if other unlawful actions are involved.
Legal consequences
If you break an NDA, the other party may sue for breach of contract. They can ask a court to issue an order (called an injunction) to stop you from sharing more information, and they can seek monetary damages for any harm caused.
There is a high burden of proof to be discharged when it comes to obtaining an injunction. But where a breach of confidentiality is concerned, it is a general principle that damages will not be an adequate remedy. Thus, an NDA should include an acknowledgment that the recipient agrees that injunctive relief will be appropriate in the event of a breach.
In more serious cases—such as those involving trade secrets, national security issues, or violations of court orders—criminal charges or specific statutory penalties may also apply.
Financial consequences
Courts may order the breaching party to pay compensatory damages, which can include restitution for lost business opportunities, reduced intellectual property value, or other measurable losses. In some cases, punitive damages may be added to punish extreme misconduct.
Many NDAs also include a fee recovery clause, allowing the harmed party to recover their legal costs. This means the person or business that breached the NDA could end up covering both damages and the other side’s litigation expenses.
Employment and business impact
For employees and contractors, breaking an NDA can lead to immediate termination and may harm future job prospects—particularly in industries that value discretion and trust.
Businesses that violate NDAs may lose clients or contracts, strain partnerships, and damage long-term business relationships because they’re viewed as unreliable when managing confidential information.
Reputational damage
Individuals who disclose confidential information without authorization risk being labeled as untrustworthy, which can affect their professional reputation, references, and relationships.
Organizations may also suffer erosion of their brand and trust among customers, investors, and partners if they fail to protect or improperly disclose sensitive information.
Limited exceptions to disclosure
Most NDAs include exceptions that permit disclosure when required by law, a court order, or to report illegal activity, as outlined in the Whistleblower Protection Enhancement Act of 2012. Even then, the disclosing party must usually limit what they share and, where possible, notify the other party first.
Information that’s no longer confidential—for example, details that become public through no fault of the signer—typically falls outside the NDA’s protection and may be disclosed without violating the agreement.
Non-Disclosure Agreement FAQs