Most small business owners have at least heard of nondisclosure agreements (NDAs), and many have used one during the course of their business. In this age of prolific information sharing, an NDA is an important legal document that’s widely used across all industries.
Still, some business owners have a lingering question: Is a nondisclosure agreement legally binding? In short, the answer is yes. However, we explore some important details concerning NDA legality below.
Is an NDA legally binding?
As an accepted legal contract between parties, an NDA is legally binding if those noted in the document sign it. However, the agreement must meet certain conditions. For example, you need foundational elements, such as
- Full legal names. Identify the parties who are agreeing not to disclose the information noted in the document. Without the names of involved parties, the NDA cannot specify who is beholden to its terms.
- Definition of information. Define what information the parties signing the document should not disclose. Without defining the information that’s meant to be kept secret, the parties cannot know what they can and cannot disclose. In addition, the omission of these definitions will make enforcing the contract at a later point difficult.
- Scope. Indicate how broad (or narrow) the scope of the NDA is regarding the parties’ obligation to keep the defined information confidential. Without a clear scope of obligation, the parties cannot know to what lengths they must go to keep the defined information secure.
- Date of signing. Include a date of signing to indicate at what point the parties agree not to share the defined information moving forward. Without a date of signing, the NDA cannot specify when exactly the parties are meant to begin safeguarding the defined information.
- Agreement term. Note how long the NDA is to remain in effect — i.e., how long the parties must refrain from disclosing the information to anyone other than those who are deemed acceptable in the contract. Without an agreement term, the parties cannot be sure how long they must uphold the terms of the NDA.
Andrew Legrand, attorney and founder of Spera Law Group, adds that the legality of NDAs shouldn’t be your only concern. Another question you must ask is whether the NDA is actually enforceable. For example, if you live in the United States and sign an NDA with a developer in China, it’s technically legally binding.
“But if the developer breaches the agreement, how do you go about enforcing your remedies? This is where working with a lawyer before drafting and signing your NDA can put you and your confidential information in a safer position,” Legrand advises.
Organizations should draft NDAs with this question in mind: How am I going to enforce the terms I include in this contract? “Sometimes, we know it’s impossible to enforce, but put one together anyway. At least you’re mentally and operationally prepared if the contract is breached. Knowing it’s impossible to enforce is better than thinking it’s possible when it actually isn’t,” Legrand explains.
In Legrand’s experience, enforceability is typically a bigger hurdle to business owners attempting to ensure the party signing the NDA abides by it. “But NDAs are relatively simple contracts, and absent a vice of consent under state law, they are typically legally binding.”