Nondisclosure Agreement

How Do Employers Use a Nondisclosure Agreement?

Tip of fountain pen writing
••• Martin Barraud/ OJO Images/ Getty Images

A nondisclosure agreement is a written legal contract between an employer and employee. The nondisclosure agreement lays out binding terms and conditions that prohibit the employee from disclosing company confidential and proprietary information.

A nondisclosure agreement is in effect for the duration of an employee's employment and for a period of time following employment termination.

When Else Are Nondisclosure Agreements Used?

A nondisclosure agreement is also used in other circumstances where an employer is interested in keeping company confidential and proprietary information private.

Using it under some of these circumstances requires a leap of faith by the employer who doesn't know the individuals who are involved in the conversation.

But, as a binding, legal document, the employer would have some recourse if company confidential or proprietary information was shared. The occasions on which an employer will want to use a nondisclosure agreement include:

  • management and senior level job interviews during which company confidential information is discussed with the candidate, (It is impossible to hire a senior staff person without discussing highly confidential information. Without the discussion, the employer and candidate would not be able to identify whether the candidate fit the job.)
  • consultant or contractor contract and assignment discussions and any products that result from the contractual work performed for the company,
  • vendor discussions that involve products, parts, and other proprietary information sharing to determine whether the vendor has the capability and capacity to produce the necessary product, and
  • situations involving stock or company purchase, due diligence, or any interaction during which confidential information is shared. (During due diligence any person who must review company confidential information is required to sign a nondisclosure agreement: accountants, company owners, product review senior employees, and so forth.)

    How Do Employers Benefit from Using Nondisclosure Agreements?

    Employers benefit from nondisclosure agreements because they keep these parties from sharing proprietary knowledge, trade secrets, client or product information, strategic plans, and other information that is confidential and proprietary to the company with competitors.

    Nondisclosure agreements state that the signer cannot disclose or in any way profit from company confidential information supplied.

    Nondisclosure agreements frequently claim company ownership of anything that is developed, written, produced, or invented during or as a result of employment, contracts, services, or interviewing if it is in any way related to the scope of the company's business.

    A nondisclosure agreement should offer a clause that allows an employer to sign off on or give permission to the signer to use company proprietary information. This allows employees some latitude to participate in activities such as starting a business or becoming a supplier to their former employer.

    Also Known As nondisclosure, NDA, confidentiality agreement