- In court it's not enough to say “we had an NDA”. The court asks what information you protected and how.
- A working NDA has a list of information, a marking procedure, a term and liability.
- An NDA works together with access controls, document markings and internal rules.
An NDA is considered one of the most important documents in business. And at the same time one of the most underworked. Everyone signs them, but few of them work.
A typical situation
A company has information it doesn't want competitors to see: the client base, financial figures, technical solutions. Every new employee or contractor signs a standard NDA from the internet. One sentence about not disclosing confidential information. Box ticked, matter closed.
And then the information leaks.
What the court asks
In court it's not enough to say “we had an NDA”. The court asks specifically: what information was considered confidential, how you marked it, what protective measures you took. If the agreement has no clear answers, there's nothing to argue about.
The law protects information as a trade secret if it's valuable precisely because others don't know it, and the owner takes steps to keep it secret. An NDA is one of those steps. But not the only one.
4 elements of a working NDA
1. A list of information. A specific list of what the parties recognise as confidential. Not “any information”, but client databases, supplier prices, source code, financial statements.
2. How it's shared and marked. How you indicate a document is confidential: a label, a separate folder, password-protected access.
3. Term. The obligation shouldn't end along with the main contract. Otherwise someone leaves on Monday and can start talking on Tuesday.
4. Liability. A specific amount or a way to calculate damages. Without it, proving the extent of the harm is very difficult.
Without these four, an NDA is a decorative document. It looks serious but carries no legal weight.
Who to sign with
| With whom | What matters |
|---|---|
| Employee | Link it to job duties and an order on trade secrets |
| Contractor or sole proprietor | A ban on using your solutions in other projects |
| An investor or partner in negotiations | A mutual NDA, specifying what exactly you're disclosing |
| Foreign party | Governing law and court |
Beyond the paper
An NDA works together with practice: who has access to the database, whether exports are logged, whether access is revoked when someone leaves. If the information is open to the whole company, it's hard for a court to believe you guarded it.
More: turnkey NDA and developer agreement.
Frequently asked questions
Can a penalty be recovered for breaching an NDA?
Yes, if the amount or the calculation mechanism is written into the agreement and you prove the breach.
How long should an NDA last?
The term is chosen to suit the information. For some data the obligations should continue after the cooperation ends.
Do I need an NDA with employees if there's an employment contract?
Employment contracts rarely contain proper confidentiality terms. A separate document and an order on trade secrets are better.
This article is general in nature and is not legal advice. Every situation has its own nuances.
