What Is an NDA?

A Non-Disclosure Agreement (NDA) is a legally binding contract that prevents parties from sharing confidential information with unauthorized individuals.

Imagine you hire a hotshot engineer who works for you for a year, then gets poached by your competitor… and then tells them all the details of your new product, letting them beat you to market.

Without an NDA, you might not have the legal recourse to restrict information once someone leave your company (freedom of speech and all that). But with an NDA—that’s a different story.

NDAs serve as essential tools for businesses that need to share confidential information while maintaining their competitive advantages.

Companies rely on NDAs when entering negotiations with potential partners, hiring employees, or working with contractors. The agreements allow organizations to share trade secrets, client lists, business strategies, and other sensitive data necessary for operations. These contracts remain in place even after business relationships or employment ends.

When properly structured, these agreements function across international borders. Organizations can specify jurisdiction and governing law within the NDA to ensure enforceability in multiple countries. This global applicability makes NDAs valuable tools for companies that operate internationally or work with global talent.

NDAs provide legal recourse when confidential information is improperly disclosed. Organizations can pursue breach of contract claims in addition to other legal remedies if someone violates the agreement. The employment contract clearly defines which information requires protection and specifies consequences for unauthorized disclosure.

Why should employers use NDAs?

NDAs address multiple legal needs. These agreements provide comprehensive protection across various scenarios where sensitive information must be shared.

• Protect intellectual property. NDAs shield valuable assets like product designs, proprietary algorithms, business strategies, and customer databases from unauthorized disclosure. This protection extends to all forms of intellectual property that give companies their competitive edge.
• Safeguard trade secrets. These agreements prevent competitors from accessing confidential processes, formulas, or methodologies. Former employees cannot share specialized knowledge gained during their tenure with new employers.
• Establish legal recourse. NDAs allow organizations to pursue legal action when confidential information is improperly shared. These agreements provide clear definitions of breach and facilitate recovery of damages.
• Build trust in partnerships. Early-stage business discussions require sharing sensitive information to evaluate potential collaborations. NDAs create safe environments where parties can be open without fear.
• Secure remote and global talent. Organizations working with freelancers, contractors, or international employees use NDAs to prevent intellectual property leakage across borders. These agreements remain effective regardless of geographic location.
• Maintain competitive advantage. NDAs help companies preserve their market position by preventing strategic information from reaching competitors. This protection allows businesses to innovate and plan without external interference.
• Protect client confidentiality. Service providers use NDAs to assure clients that sensitive business information will remain confidential. These agreements demonstrate professional commitment to privacy and discretion.

Key clauses in an NDA

Effective NDAs contain specific clauses that define the scope, obligations, and enforcement mechanisms of the agreement. Employers should ensure these essential elements are clearly articulated to maximize protection and enforceability.

• Definition of confidential information. Specifically identifies what information the agreement covers, including trade secrets, client data, business processes, and proprietary methodologies.
• Obligations of the receiving party. Outlines how recipients must handle confidential information, including storage requirements, access limitations, and prohibited uses.
• Exclusions. Lists information exempt from confidentiality requirements, such as publicly available knowledge, information already known to the recipient, or independently developed data.
• Duration. Specifies how long confidentiality obligations remain in effect, which may extend beyond the end of employment or business relationships.
• Consequences of breach. Details available legal remedies for employers, including monetary damages, injunctive relief, and attorney fees recovery.
• Jurisdiction. Determines which country’s laws govern the agreement and where legal disputes will be resolved, particularly important for international business relationships.
• Return of information. Requires recipients to return or destroy all confidential materials upon termination of the relationship or upon request.
• Non-solicitation provisions. Prevents recipients from soliciting the company’s employees, clients, or business partners using confidential information.

In severance agreements and legal settlements, it’s common for employers to require their workforce to sign nondisclosure and non-disparagement clauses during the hiring process. “But employers and HR professionals need to be careful that these clauses don’t violate new state laws,” advises Leah Shepherd, SHRM’s Senior Legal Advisor.

“Maine, Oregon and Washington are the latest states to restrict how employers can use those types of contracts. Other states such as California, Illinois, New Jersey and New York also have similar laws,” Shepherd adds.

Types of NDAs

Different business situations require different types of NDAs to address specific confidentiality needs. Understanding these variations helps employers select the most suitable agreement structure for their specific circumstances.

Unilateral NDA

A unilateral NDA protects information flowing in one direction only. The disclosing party shares confidential information while the receiving party agrees to keep that information private. These agreements are the most common type of NDA and work well when only one organization needs to share sensitive data.

Mutual NDA

These types of NDAs create reciprocal confidentiality obligations between both parties. Each organization shares sensitive information and receives equal protection for its disclosures. Mutual NDAs are particularly useful during merger and acquisition discussions, joint ventures, or strategic partnerships where both parties need to exchange confidential business information.

Employee NDA

Employee NDAs specifically address the confidentiality obligations of workers who gain access to sensitive company information. These agreements prevent employees from sharing trade secrets, customer data, or proprietary processes during and after their employment. Employee NDAs must be narrowly tailored and specifically identify the information that requires protection.

Third-party NDA

Third-party NDAs protect confidential information when working with external consultants, freelancers, vendors, or contractors. These agreements ensure that service providers cannot share proprietary information with competitors or use it for their own benefit. Third-party NDAs are essential for organizations that rely on external talent or service providers who need access to sensitive information.

When should employers use NDAs?

Employers should implement NDAs strategically in situations where confidential information disclosure creates potential business risks or competitive disadvantages.

• During the hiring process. Organizations should require NDAs when recruiting for leadership positions or strategic roles that involve access to sensitive business information. These agreements are particularly important in industries with proprietary data or trade secrets.
• Working with independent contractors. NDAs protect confidential information when engaging freelancers, consultants, or contract developers who need access to proprietary systems or business processes. Independent contractors typically work with multiple clients, which increases the risk of inadvertent information sharing.
• Mergers and acquisitions discussions. Companies should use NDAs during initial acquisition conversations and due diligence processes where detailed financial, operational, and strategic data must be shared. These agreements prevent leaks that could jeopardize deals or provide competitors with advantages.
• Granting system or IP access. Employers should implement NDAs before providing access to internal systems, databases, or intellectual property assets that contain trade secrets or proprietary information. This protection extends to technical data, client lists, and unpublished financial information.
• Cross-border collaborations. NDAs become essential when working with international vendors, service providers, or partners where different legal systems create enforcement challenges. These agreements should specify jurisdiction and governing law to ensure enforceability across borders.
• Investment and funding conversations. Organizations seeking capital should use NDAs when sharing sensitive business information with potential investors or during fundraising efforts. These agreements protect proprietary data during investor review processes.

Karina Sterman, an attorney with Greenberg Glusker, told SHRM, “Even if a business doesn’t have any clear trade secrets, employers who share business information with workers about their processes, clients and development plans should make sure the information is protected against unauthorized disclosure.”

NDAs for Global Teams

NDA enforceability varies significantly across international borders due to different legal systems and employment protection standards. Countries like Germany enforce NDAs when used to protect business secrets, but have implemented strict whistleblower protection laws that prevent NDAs from silencing reports of misconduct. These regional differences require employers to understand local legal frameworks before implementing confidentiality agreements with international talent.

Local labor laws in many jurisdictions can override or modify NDA terms regardless of what the agreement states. Cross-border enforcement presents additional challenges due to differences in legal systems, language barriers, and varying degrees of legal protection for confidential information. Employers must ensure their NDAs comply with local laws in all countries where they operate to maintain enforceability.

Organizations should consult qualified legal counsel familiar with region-specific requirements when hiring globally or using NDAs with international employees. Different countries have unique cultural and legal norms that impact how NDAs are interpreted and enforced. Legal advisors can help navigate these complexities and ensure agreements align with local legal standards while protecting business interests.

NDAs cannot restrict employees from reporting illegal activities or misconduct in most jurisdictions, including the United States, United Kingdom, and Canada. Recent enforcement actions by agencies like the Department of Justice and Department of Labor Occupational Safety and Health Administration specifically target NDAs that undermine whistleblower protection laws.

According to attorneys at O’Melveny & Myers, this effort is intended to “crack down on the suppression of whistleblower protections and strengthen whistleblower programs in an effort to incentivize reporting of corporate wrongdoing.” Employers face potential criminal charges if NDAs are used to obstruct investigations or prevent legitimate reporting of corporate wrongdoing—as they should.

FAQs

Are NDAs enforceable globally?

NDAs are internationally enforceable when properly structured with clear jurisdiction and governing law provisions. However, enforcement depends on local laws and legal systems in each country where the agreement may be contested. Employers should consult legal counsel to ensure their NDAs comply with local requirements in all jurisdictions where they operate.

Can NDAs be used with independent contractors?

Yes. NDAs are highly recommended for independent contractors who access proprietary systems, intellectual property, or sensitive business data. These agreements are particularly important because contractors often work with multiple clients and may inadvertently share confidential information. Employers should ensure contractor NDAs specifically define what information requires protection and include provisions for third-party collaborations.

What happens if an NDA is violated?

Employers can pursue legal action, including lawsuits for financial damages, injunctive relief, and recovery of attorney fees when NDAs are breached. The specific consequences depend on the terms outlined in the agreement and the jurisdiction where enforcement occurs. Violation can also result in criminal charges in extreme cases involving trade secrets or sensitive information disclosure to competitors.

Do NDAs need to be signed before employment begins?

Ideally, employers should secure NDA signatures during the offer stage or early in the onboarding process before sharing any confidential information. Without a signed NDA, individuals have no legal obligation to protect confidential material.

Pebl can help

Expanding globally means exponentially increasing the people who work for you and the people you work with—and more people with eyes on sensitive information means more need for NDAs. It’s not about restricting your employees, it’s about protecting yourself.

That’s where Pebl comes in. Our Employer of Record service streamlines hiring, managing, payroll, and more in 185+ countries worldwide, taking the burden off you. Let us handle the paperwork while you handle the actual business. Contact us to learn more.

This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.

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