Protection of Confidential Information

Every Non-Disclosure Agreement aims to protect the disclosure of confidential information. Parties cannot share with others the specific confidential information that the NDA seeks to protect. However, sharing might be permitted if the third party that receives the information also agrees to the terms of the Non-Disclosure Agreement. Once a party receives confidential information under an NDA, they have an affirmative duty to protect that confidential information. That means more than just not sharing the information. They must also take steps to keep the data safe so that other parties cannot access it. In some situations, that can mean ensuring that they have digital protections on computers or keeping confidential information in a locked location.
Protection of confidential information also generally requires that the receiving party notify the providing party if there has been a data breach or any other action that would expose the information to someone that should not have it. Copying, modifying, and methods of disclosure might be addressed as well.

Unauthorized Disclosure of Information - Injunction

A Non-Disclosure Agreement specifically requires the parties to keep information safe and confidential. If it is shared, there are consequences. Specifically, the sharing party might be legally liable for any damages caused by sharing the information. In most cases, the party who owns the confidential information can also request an “injunction” from the court. An injunction is a court order that stops a party from taking a specific action. To receive an injunction, the party requesting it must show that they would suffer irreparable harm if the action does not stop.

Consider an example. Imagine an employee signed an NDA as part of their employment. The employee decides to quit and start his own business. He takes a confidential client list from his prior employer. He starts calling those individuals and offering the same services provided by his previous employer at a slightly lower rate—because he knows what those clients were paying for services from his prior employer. In that situation, the employer can file a legal complaint asking the court to issue an injunction to stop the employee from stealing its clients and violating its NDA. The injunction request would likely be granted because the employer’s business would be significantly harmed if the employee did not stop his actions. If the employee ignores the court order, he could be fined and even imprisoned in some cases.

Non-Circumvention

In some situations, one business shares its client information with another business or person to further its business. A common example is when a company uses a third-party contractor to perform part of its services, such as in the construction context.
For instance, a company called “Maintenance Company” might have an ongoing relationship with a client where the client pays for maintenance and cleaning services. Maintenance Company then hires various other companies to fulfill their contract obligations, such as an elevator repair company, a cleaning company, an electrician, etc.
A non-circumvention agreement would prevent, for example, the cleaning company from reaching out to the client directly to provide services. Instead, the cleaning company has to go through Maintenance Company when it comes to anything related to the client. The cleaning company cannot go behind Maintenance Compan

Return of Confidential Information

There is a clause in many NDA forms that require the return or destruction of confidential information when the NDA’s term is over or when the business relationship between the parties ends. This clause further protects confidential information by ensuring it is destroyed or returned when a party no longer needs it. A return of confidential information clause also usually applies to any copies or duplicate information a party creates. While this type of clause is most often invoked at the end of the relationship between the parties, it can be “on demand” as well. That is, the providing party can specifically ask that the information be returned at any time. This clause might also require a signed affidavit or statement from the receiving party that they have turned over all confidential information that was in their possession.

Relationship of Parties

Most NDAs will include a clause limiting or restricting the parties' relationship. For example, in the employment context, a relationship clause might specifically state that the NDA does not create an employment contract and that the employee is still an “at-will” employee. In other contexts, the relationship clause might state that no employee/employer relationship is created because of this agreement. It might also state that there is no joint venture or partnership as well. This clause helps the parties stay on the same page about their relationship. For example, it is much harder for an individual to argue that they thought they were an employee because of an NDA when the NDA specifically defines the relationship between the parties.

No Warranty

A section of an NDA form might include a short “no warranty” clause. This section generally sets out that the party providing information does not warrant the information provided. In most cases, the warranty applies to whether the information is accurate or comprehensive. The no warranty section might specifically state the information is provided “as is” and is provided only for a specific purpose.