In a non-disclosure agreement an owner, officer, employee, contractor or customer of a corporation agrees not to disclose confidential information of a corporation to any third-party, and typically, not to use such information for their own personal use.
Confidential information can be broadly defined as any information relating to a corporation, its assets and its products that is not known to the public which the corporation does not wish to disclose to the public. Such information can include:
- Trade secrets of the corporation.
- Employees of the corporation.
- Financial information relating to the corporation.
- Shareholders in the corporation.
- Pending litigation relating to the corporation.
- Negotiations relating to the sale of the corporation.
The duration of the agreement can be for a limited term, say five years, or more commonly, indefinite, expiring only when the confidential information becomes known to the general public.
Non-disclosure agreements are valid and enforceable contracts although, frankly, it can be very difficult to detect breaches of the agreement in many cases. For example, a former employee may carry a great deal of confidential information in their heads relating to a corporations products and may, perhaps unconsciously, use the information for the benefit of a competitor. This particular situation can be prevented by the parallel use of non-compete agreements, but other situations present greater difficulties. For example, a current employee might carelessly discuss a corporation's finances with a friend.
Perhaps a more important function of a non-disclosure agreement is simply to put people on notice that there is information that a corporation wishes to maintain confidential, and that unauthorized disclosure of such information may have serious legal consequences for the discloser.
Note that in parallel with non-disclosure agreements, a corporation should ideally implement rigorous measures to secure confidential information, and such information should only be made available to individuals on a strict, need-to-know basis.