Most businesses have at least some information they want to keep private—away from competitors and others—and employees often have access to that information. This is true whether the business is organized as a sole proprietorship, partnership, corporation, limited liability company (LLC), or other type of entity.
If your company has employees, or even one employee, you will want to be sure your sensitive information does not get disclosed by an employee, both during their employment and in the event the employee leaves the company. An employee nondisclosure agreement, or NDA, can help. As an employer, it's important to understand how an NDA works and what it should contain.
Information that a business desires to keep private is often referred to as sensitive, confidential, or proprietary information. Some types also may be referred to as intellectual property, which generally refers to things that are subject to patent, copyright, or trademark protection. Examples of confidential information include:
- Customer lists and other information about customers and potential customers
- Supplier lists and information
- Trade secrets, such as product specifications or formulas
- Computer code and software
- Products in development or under research, including those that may eventually result in patents or copyrights, or become trade secrets
- Financial information, such as contracts with other companies, investments, profit and loss statements, and tax returns
- Business plans, such as for expansion of the business into new locations, new lines of products or services, or to make a public stock offering
- Information about anticipated or pending litigation
The exact nature of the information you need to keep secret will depend upon the nature of your business.
Content of an Employee Nondisclosure Agreement
There are several ways to approach an employee NDA:
- It can be a stand-alone contract, dealing solely with nondisclosure.
- If there is a potential for the employee to leave your company and start his or her own business in competition with you, it is advisable also to have a noncompete agreement. This can be a stand-alone document, or can be combined with the nondisclosure agreement into a single document.
- You may also want to have a more comprehensive employment agreement that contains a nondisclosure provision, a covenant not to compete, and outlines the employee's duties, compensation, and other terms of employment.
A basic employee nondisclosure agreement may typically include:
- A description of the information that is deemed confidential, which will usually include any confidential information that may be developed or created by the employee
- A description of information that is not considered confidential, which will usually include information that is known to the public or becomes known to the public by means other than the employee's breach of the agreement
- Any circumstances in which confidential information may be disclosed to others, such as disclosure to the company's attorneys or accountants
- Any specific duties the employee has regarding confidential information, such as destroying copies or returning materials to the company upon termination of employment
- Any limitation of the time period during which information will be deemed confidential, although confidentiality can be for an unlimited time
- Standard terms for any contract, such as those relating to choice of law, arbitration of disputes, remedies for breach of the agreement, liability for attorney fees, prohibiting oral modification of the agreement, etc.
The description of the information deemed confidential needs to be tailored to the types of information that relate to your specific business or industry.
The details also may be tailored to what may be negotiated with the particular employee. For example, if the employee will be bringing certain customers to your business, there may be an exception as to confidentiality of that customer information upon termination of employment.
An employee nondisclosure agreement can be very important for your business. To help ensure that your business secrets are well protected—and that the NDA contains everything it needs in order to be enforceable—you may want to prepare the agreement with the assistance of an attorney.